Google, which offers email, web, news and map services, said it will work with several computer manufacturers in delivering the operating system to consumers.
The plan by Google to launch a direct rival to Windows, which is installed in 90 per cent of the world’s PC, is its biggest challenge to Microsoft yet.
"It's been part of their culture to go after and remove Microsoft as a major holder of technology, and this is part of their strategy to do it," Rob Enderle, principal analyst at Enderle Group, said.
"This could be very disruptive. If they can execute [their plan], Microsoft is vulnerable to an attack like this, and they know it," he said.
A spokesman for Microsoft had no immediate comment on Google's announcement.
Manufacturers courted
Google will need to form partnerships with PC manufacturers, which currently offer Windows on most of their product lines, in order for the operating system to succeed.
"We are looking into it," Marlene Somsak, a spokeswoman for HP, a PC maker, said.
"We want to understand all the different operating systems available to customers, and will assess the impact of Chrome on the computer and communications industry."
Google launched an internet browser in late 2008 in a challenge to Microsoft's Internet Explorer browser, but it has failed to make a big impact.
The browser held only a 1.2 per cent share in February, according to Net Applications, a market research firm. Explorer is the leading browser, with a 70 per cent market share.
The new Google operating system is based on Linux code, which allows
third-party developers to build applications compatible with the system.