Entry point clothing prices at M&S have fallen to 11 per cent above the market average in February, compared with more than 40 per cent above in three separate surveys undertaken last year.
The price positioning makes M&S cheaper than Next, which is 16 per cent above average - the same level as last September.
Prices of M&S childrenswear - a category in which the retailer has floundered, with debacles such the ill-fated Zip Project - have plummeted to 12 per cent below the average. In contrast, Next is 7 per cent above average on childrenswear.
The findings comes from a survey conducted by Goldman Sachs and suggest M&S is determined to pull the rug from under Next, which is widely believed to be among the main beneficiaries of M&S's problems.
Both retailers were 'neck and neck' in two Goldman Sachs pricing surveys at the beginning of 2003, but Next's focus on direct sourcing helped it push ahead subsequently.
Goldman Sachs reported that Debenhams had also 'sharpened its price points' from 49 per cent above average in September to 29 per cent. It concluded: 'Taken together with the step change in M&S pricing, this is likely to make life more difficult not only for Next but also for Burton, Dorothy Perkins, Littlewoods and Bhs.'
According to the report, the concern now for M&S will be to maintain margins in the light of the price reductions.
The most expensive retailer of the 14 retailers surveyed was Benetton, whose prices were more than double the average.
Asda was cheapest at 50.3 below the average, steady on September last year. Matalan is in hot pursuit at 49 per cent, from 44.6 per cent five months ago.