Microsoft and U.S. book retailer Barnes & Noble on Monday announced an e-book venture to challenge Amazon and Apple in the market.

Microsoft will make a 300-million-U.S. dollar investment in the new Barnes & Noble subsidiary which will bring together the digital and college business of Barnes & Noble, according to a joint press release of the two companies.

Microsoft will account for an approximately 17.6 percent equity stake and Barnes & Noble will own the remainder of the subsidiary which has been valued at about 1.7 billion dollars.

The as yet unnamed company will focus on Barnes & Noble's Nook e-reader, the e-book brand and the educational reading market. The two companies did not give much details on their partnership, but announced to release a Nook application for Windows 8, Microsoft's latest operating system scheduled to be unveiled later this year.

As the largest book retailer in the U.S., Barnes & Noble has been working to grab its share for the growing digital book market which is currently dominated by Amazon and Apple.

Microsoft and Barnes & Noble also said they had settled an e- book patent dispute, reaching a royalty-bearing license under Microsoft's patents for Barnes & Noble's Nook e-reader and tablet products.