Developing the chip will cost the Japanese electronics and entertainment giant about $400 million, Kyodo said.

Sony has set its sights on online gaming as the new frontier and is trying to take control of the market before rivals Microsoft and Nintendo come up with their own versions. Microsoft makes the Xbox, and Nintendo has GameCube.

Microsoft and Sony both have said they will sell adapters and software for games that can be played over the Internet later this year.

The new PlayStation would work over super-fast fiber-optics connections and would be Sony's first console to run games without a digital video disc, Kyodo said.

Sony also is considering offering the new chip to other companies for use in televisions and electronics equipment, Kyodo said.

Worldwide, Sony has shipped more than 28 million PlayStation2 machines. Nintendo says 2.7 million GameCube consoles have been shipped worldwide, about half of those in Japan. Microsoft expects to ship 3.5 million to 4 million Xbox consoles worldwide by the end of June.