The company's internet arm, MSN, has boosted the amount of email storage for users of its basic free service from 2Mb to 250Mb -- overtaking Yahoo!, which last month increased its own storage to 125Mb -- and will allow users to send attachments up to 10Mb in size.
At the same time it has launched a "premium" webmail service, Hotmail Plus, which will offer all but unlimited storage (2Gb) and various extra features for about $20 (£11) a year.
The company has also announced that it will add free email virus scanning and "clean-up" for all its customers.
The move follows Yahoo's announcement last month that it was to overhaul its webmail offer in response to the upcoming launch of Gmail, a search-based webmail service being developed by Google. Gmail is in beta testing stage at the moment and proposes to offer free webmail with up to 1Gb of storage and a search-based interface, funded by contextual advertising.
Gmail was greeted by controversy over privacy issues surrounding the way in which users' emails will be "read" by its software in order to deliver contextual ads. Yahoo! and MSN's premium services will be ad free.
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