BT was expected to spark a price war yesterday after slashing the costs of telephone charges and offering free evening and weekend calls.

Independent consumer watchdogs said BT was now offering among the cheapest bundled payment packages in Britain after cutting prices by up to 20% on two of its popular fixed price packages.

BT said the cuts to its Option 2 and Option 3 tariffs - its second major round of price cuts in a year - would benefit customers by around £34m.

However, BT confirmed that a connection charge for all chargeable daytime calls will double from 3p to 6p from August 1.

The group, which for years has seen millions of customers jump ship to cheaper packages offered by rivals such as Carphone Warehouse, is hoping to boost customer loyalty and win consumers back as well as tempt its 11.1 million customers to switch from the pay-as-you-go option.

From yesterday, BT was offering free weekend and evening calls in the UK for a year for the price of line rental only to anyone signing up for its Option 2 package, including current customers. Line rental for all customers has been cut by 25p a month to £10.50 - for paperless bills.

Customers, however, would be tied to an 18 month contract and, after a year, would pay £3.45 a month for the free calls, still 50p cheaper than the norm.

The group, which was freed from price controls by regulator Ofcom last year, also cut the monthly charge on its Option 3 package to £7.95 a month from £9.95, taking the cuts on this tariff to 45% in the last 10 months. The 835,000 customers on Option 3 get all their calls to UK landlines for free at all times.

BT said it would introduce further price changes in August, with the cost of calls to UK landlines during evenings and weekends set to fall by a further 18%.

However, it plans to increase the cost of daytime calls not covered by bundled tariffs to 3.25p a minute from 3p per minute. The 2.4 million customers currently on BT's Option 2 bundled package will be affected by the daytime price increases. At the same time, BT will cut the cost of evening and weekend calls to UK landlines from 5.5p per hour to 4.5p per hour.

The telecoms giant is also keeping in place the £4.50 quarterly surcharge for cash and cheque customers.

BT spokesman Ross Cook said: "We think more and more people want packages where the majority of their calls are included per month. We think the days of paying per call are starting to come to an end."

Karen Darby, founder of price comparison website SimplySwitch.com, said BT's shake-up was great news for consumers.

She said: "With these cuts in place, BT currently tops the tables as the UK's best value inclusive call-package provider. But it won't be long before rival firms respond by slashing their own prices, sparking a price war that will further benefit the customer."