The Google Chrome OS will be initially developed for small netbook computers, launching in 2010, before eventually rolling out across every platform, including all Windows, Mac and Linux based systems.
Google said the software will be "fast" and "lightweight", with minimal bells and whistles "to stay out of your way", much like its search engine and browser.
The aim, the company said, is to alleviate some of the frustration inherent in Windows-based computers, such as slow loading times, computer viruses and complicated hardware installation.
On the company's official blog, Sundar Pichai, vice-president of product management, took aim at Microsoft, saying "the operating systems that browsers run on were designed in an era where there was no web".
Over 95% of netbooks -- the fastest growing category of PCs -- use Microsoft's Windows XP operating system, which is nearly a decade old.
The Google Chrome OS will largely be internet-based and open source, meaning web developers can create applications for the system, as with Google's suite of online products.
Google said the announcement -- which has been rumoured for a number of years -- was made early to give developers time to begin working with Google's source code, which is likely to be released at the same time Microsoft launches its new operating system, Windows 7, before year end.
The company issued other veiled criticisms of Microsoft, such as "we hear a lot from our users and their message is clear -- computers need to get better" and users "want their computers to always run as fast as when they first bought them".
Google is increasingly going head to head with Microsoft, having launched its Chrome browser to rival Internet Explorer, Google Docs to compete with Microsoft's Office and Android to take on its Windows Mobile system.
Even Gmail, which was designed to chip away at Microsoft's Hotmail, is now one of the most popular email services, used by more than 146m users.
Yesterday Google announced that Gmail would finally be shedding its "beta" label, which it has worn for the past five years.
When products are labelled "beta" it usually means they are still being tested, or to act as a "get out of jail free" card when things go awry.
In addition to Gmail, Google Docs, Google Calendar, Google Talk and Google Sites have all come out of beta.