Following a week of speculation, the supermarket announced that the prices of more than 3,000 products would be slashed from Monday, with many more to follow in what it pledged was an "indefinite" battle.
It also revealed a shift away from promotions, in favour of more constant lower pricing, especially across fresh food, and said mid-priced Tesco own-label products would be pitched at up to 50% cheaper than brands.
Tesco revealed it was cutting the price of bread, fruit, vegetables and a host of other staple goods.
The so-called Big Price Drop will also see an end to its double-point promotion on its Clubcard loyalty scheme, from the end of October, with the £200m a year the scheme costs to be ploughed into further cuts.
Tesco UK CEO Richard Brasher said he had been planning the move for six months. Calling it "the biggest [price initiative] in the 25 years I've been in the business", he claimed it could halve the impact of inflation on customers.
"I'm confident it will be good for our company and the country and put Tesco on the front foot," he said, adding: "It will go on for as long as it takes."
A major advertising campaign would launch this weekend, he continued.
The announcement came following a dramatic week of speculation and activity in the City. Tesco shares were up 0.8% in the first hour after the announcement on Thursday, while Sainsbury's was down 0.4% having already slumped 2% on Wednesday. Ocado's plunged 4.3% in the first hour, following an 11% fall the previous day, with analysts predicting it would be hit hard by the move.
Asda claimed Tesco's price cuts were not as good as its own. "We ended all price wars with our 10% guarantee," said a spokeswoman. "Whatever others do, they can't trump our cast-iron commitment to be 10% cheaper on a comparable grocery shop."
A Sainsbury's spokesman added: "This is classic smoke and mirrors from Tesco giving with one hand and taking with the other. Removing double Clubcard points will save Tesco £350m. It is no surprise to us that Sainsbury's price-match policy, together with a stronger own-brand offer, has forced Tesco into having to take this kind of action."
Shore Capital's Clive Black described Tesco's move as a "proportionate step". Nomura analyst Nick Coulter, agreed. "This is not an irrational price war, but a meaningful step in pricing to reassert Tesco's value credentials," he said.