The retailer is said to be looking to tackle the `Aldi effect', which has seen cash-strapped shoppers flock to discount chains as food bills soar.
Tesco's move - reportedly planned for the autumn - will drive down the prices of hundreds of items in its standard own-brand range.
According to the latest figures from market researcher TNS Worldpanel, Aldi took a record 2.9 per cent share of the market in the 12 weeks to June 15, after a near 21 per cent rise in sales.
Lidl and Iceland also saw double-digit sales growth, as consumers tried to cut their bills, with Tesco and Sainsbury's losing market share.
Tesco has already dropped prices on 3,000 items and Asda is selling a range of staple goods for just 50p in the battle for shoppers' cash.
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