Microsoft is rumored to start micro-transaction-based free-to-play games for its Xbox and Xbox Live users.

Previously, digital distribution platform Steam and developer Valve”s Team Fortress 2 were the only free gaming service providers.

Microsoft has also been rumored to be in talks with various free-to-play game developers whom they have asked for a few games for Xbox.

The new free-to-play Xbox Live game service, which is built on Microsoft’s points system, may also adopt the micro-transaction process. The players will be able to buy built-in game items using these points.

Microsoft will expect to compete with Steam’s free gaming service on PC with its own customized inclusions to Games for Windows Live, and will also sought out a new way to provide free-to-play games on Windows Phone 7.

Gamers will also be able to upgrade armor and weapons using the Microsoft points when the free-to-play service starts, the Geek reported.