'Barbie Girls' is to be released around Europe from November 15. The launch will be supported by a TV advertising campaign in the six-week run-up to Christmas.
The Barbie brand has a loyal fan base of girls aged three to eight. Mattel and Universal are hoping 'Barbie Girls' will be number one on girls' Christmas lists this year.
Rosa Zeegers, vice-president of Mattel brands consumer products Europe, said: "We know that pop music has a big influence and is very relevant to today's girl, therefore it is a natural extension for us to extend the Barbie brand into the music category."
Tim Ferone, product manager at Universal Music International, added: "Breaking Barbie as a compilation brand in Europe will be a priority for us in 2004 and 2005."
Universal has a successful track record in the children's market with recent albums including 'Hits for Kids' and 'Pop Party'.
The move comes as Mattel takes over Sky One's Mix channel for a day to attract older girls to its struggling brand.
In partnership with TV production firm Initial, Mattel has created the "It's a girl thing" strand. This will run for eight hours on Sky One Mix on October 28 and will be sponsored by Barbie.
Mattel is investing a six-figure sum in the one-off deal, which will be promoted in cinema, press and poster in a campaign through Ogilvy & Mather.
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