Microsoft said on Friday that Bungie Studios, the developers of the "Halo" franchise, will become a separate company, opening the possibility that it could make titles for Microsoft rivals.

Microsoft said it will retain a stake in the new company, to be called Bungie LLC, and will continue to publish future "Halo" games and other titles.

"Our collaboration with Bungie has resulted in Halo becoming an enduring mainstream hit," said Shane Kim, corporate vice president of Microsoft Game Studios. "While we are supporting Bungie?s desire to return to its independent roots, we will continue to invest in our ?Halo? entertainment property with Bungie and other partners, such as Peter Jackson, on a new interactive series set in the Halo universe. We look forward to great success with Bungie as our long-term relationship continues to evolve through Halo-related titles and new IP created by Bungie."

Bungie said Microsoft's Xbox 360 would be its "primary focus," though executives added they had no immediate plans to develop for Sony's PlayStation 3 and Nintendo's Wii.

"This exciting evolution of our relationship with Microsoft will enable us to expand both creatively and organizationally in our mission to create world-class games," said Harold Ryan, studio head for Bungie. "We will continue to develop with our primary focus on Microsoft platforms; we greatly value our mutually prosperous relationship with our publisher, Microsoft Game Studios; and we look forward to continuing that affiliation through Halo and beyond."

"Now that they're free they can come up with something else and address the whole market," Wedbush Morgan analyst Michael Pachter said, adding he expected Microsoft would have a window of exclusive rights to new Bungie games.

Microsoft declined to give any details of the separation, which follows days of speculation triggered by a reader blog on the Seattle Post-Intelligencer Web site that Bungie was set to split from its corporate parent.

Microsoft bought Bungie in 2000 as it beefed up its game development efforts in preparation to launch its Xbox gaming console the following year.

Halo 3, which was released on September 25, has already topped $300 million in worldwide sales, and put Microsoft's money-losing entertainment division on track to turn a profit.