Warning: may contain traces of XP

In a bid to avoid software compatibility issues, Microsoft's new Windows 7 operating system will include an option allowing users to run XP applications in a virtual environment.

Known as "XP Mode" (XPM), the new option will create a virtual XP environment running under Windows Virtual PC to ensure a smoother migration for users.

Countless businesses will remember the frustrating software incompatibilities between Vista and older applications. It is now clear that Microsoft does not wish to relive this experience with Windows 7.

In a blog entitled "Windows for your Business", the American software giant explained how XP Mode is aimed at encouraging companies to upgrade.

Microsoft's Scott Woodgate, Director of Microsoft Windows Business Group wrote: "Windows XP Mode is specifically designed to help small businesses move to Windows 7. Windows XP Mode provides you with the flexibility to run many older productivity applications on a Windows 7-based PC."

Woodgate continued: "All you need to do is to install suitable applications directly in Windows XP Mode which is a virtual Windows XP environment running under Windows Virtual PC. The applications will be published to the Windows 7 desktop and then you can run them directly from Windows 7."

This option is expected to be available free of charge to users of the top three versions of Windows 7 – Professional, Enterprise and Ultimate – although the PC in question will need a processor capable of supporting virtualisation.

As well as allowing applications designed for XP to run directly in Windows 7, XPM will also save companies having to buy two operating system licences. With the purchase of Windows 7, they will also be entitled to run XP.