The company said it plans to jettison its Bungie Studios group but will maintain an equity stake in the unit. Microsoft said the move comes in response to senior Bungie staffers' request that the group become a standalone entity.

"We are supporting Bungie's desire to return to its independent roots," said Shane Kim, corporate VP for Microsoft Game Studios, in a statement.

Microsoft acquired Bungie in 2000 and established the group as a relatively autonomous unit within its games division. The plan was meant to ensure that Bungie retained some of the edginess that helped produce hit games like Marathon, Myth, and, most recently, the Halo series.

Bungie's biggest hit by far has been Halo 3 for the Xbox 360. The game broke industry records by posting $170 million in sales on its first day of availability on Sept. 25, and more than $300 million in sales in the first week. It also broke records for online play with more than 2.7 million gamers logging in to play Halo 3 over Xbox Live in its first week on the market.

Halo 3 features Master Chief, a biologically enhanced soldier who has to blast his way through a futuristic, 3-D landscape to survive and accomplish missions. He's countered by the Covenant, an alliance of hostile aliens.

With a massive launch campaign behind it, Halo 3 has transcended gaming circles to take its place in popular culture. Madame Tussauds wax museum in Las Vegas recently installed a statue of Master Chief to stand alongside sports and entertainment stars such as Elvis and Shaquille O'Neal.

Microsoft said it would continue to own the intellectual property behind Halo 3, and will collaborate with Bungie on new titles set in the Halo universe, including a game that will be developed in part by Lord Of The Rings director Peter Jackson.

Bungie Studios will remain in its current location in Kirkland, Wash., Microsoft said.