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Microsoft has rolled out a major update to its Azure cloud computing service, promising to match the Amazon Web Services prices for commodity services such as compute, storage and bandwidth.

Last year, Microsoft began previewing a host of changes to its Azure cloud computing service including new virtual machine configurations, a virtual private network and a new Azure software development kit. Yesterday the firm announced that these features now are generally available.

In addition to supporting all of the features and capabilities included in the preview, today’s release also includes boosted high-memory virtual-machine instances of 28GB/4 core and 56GB/8 core VMs for demanding workloads.

There are also new VM image templates (including SQL Server, BizTalk Server, and SharePoint images). This means these servers in validated configuration and the applications that run on them can run in the Azure cloud without having to modify them.

Microsoft also announced new VM pricing, which delivers a 21% price reduction from the previously announced pricing of Windows Azure Virtual Machines (IaaS), and a 33% price reduction for solutions deployed using the Windows Azure Cloud Services (PaaS) model.

For example, from June 1 a large standard instance with 4 CPU cores and 7GB of memory will cost $0.36 per hour for a Windows VM and $0.24 per hour for a Linux VM. The pricing is designed to match Amazon’s on-demand VM pricing.

“It’s not only about Infrastructure as a Service (IaaS) or Platform as a Service (PaaS), it’s about Infrastructure Services and Platform Services and hybrid scenarios,” said Bill Hilf, general manager of product management for Windows Azure.

“The cloud should be an enabler for innovation, and an extension of your organisation’s IT fabric, not just a fancier way to describe cheap infrastructure and application hosting.”

The news was welcomed by Dan Scarfe, CEO of Dot Net Solutions, which develops cloud-based solutions for the likes of the Cabinet Office and Citroën.

“Microsoft is now unique in the marketplace offering a true hybrid IaaS/PaaS environment. Other providers have both parts, but none have a unified platform with unified networking and unified identity,” said Scarfe.

“Customers can now choose to deploy individual pieces of software to an appropriate cloud on a case by case basis, from a unified platform using unified tools. Not long ago it would have been the stuff of dreams. Today those dreams became reality.”

The price war between cloud service providers has been heating up for some time. Earlier this month Amazon Web Services lowered the cost of running Windows on its cloud, while Google announced a reduction on all Compute Engine pricing.

Microsoft claims that it has seen record highs in Windows Azure customer adoption, with nearly 1,000 customers signing up for Azure daily. All together, more than 200,000 customers are now using the Windows Azure platform, including 50% of the Fortune 500.