Poundland has cut its prices to 97p in a bid to undercut its 99p rivals.
The price cut will initially be put into action in its East Ham, Dudley and Chelmsley Wood stores where there is direct competiton from other low-cost stores.
Jim McCarthy, Poundland’s chief executive, told Retail Week that the move was part of the company's "competitor response" strategy.
He said: “It is those early weeks [when a rival opens] that are very important and if you can pop the balloon early we find that doing that rather than nothing at all is helpful“
“And it sends the message that we’re not a soft touch. It’s a bit like when a supermarket has a competitor opening nearby. They have hosts of tactics to dampen the impact."
It comes following rumours that Warburg Pincus, which owns Poundland, will sell the 400-store chain for as much as £600m.