The software giant is also changing the MSN architecture to ensure that if a blog has to be banned it will still be available outside the censoring country. Bloggers will also be notified before their blogs are removed.
Microsoft has called on others in the industry to agree a set of principles to apply to future cases.
"Industry-wide principles are needed. These issues are not limited to any single company or single country," said a Microsoft spokesman.
"We believe that industry-wide principles are necessary and we support a dialogue between industry leaders, advocacy groups and governments."
Details of the policy were given in a presentation by Microsoft's top lawyer, Brad Smith, at the Government Leaders Forum in Lisbon.
The situation worsened as speculation grew that no legal complaint had been made by the Chinese authorities, and that staff had been acting on their own initiative in censoring the blogs.
The move also raises an interesting legal issue. Article 35 of the Chinese constitution states: 'Citizens of the People's Republic of China enjoy freedom of speech, of the press, of assembly, of association, of procession and of demonstration.'
It also states: 'Citizens of the People's Republic of China have the right to criticise and make suggestions to any state organ or functionary. No one may suppress such complaints, charges and exposures, or retaliate against the citizens making them.'
If Microsoft is going to wait for a legal order to censor then this could open the door for Chinese citizens to challenge a banning order under the provisions of the constitution.
"Legally speaking this could happen, but it's unlikely," said Daniel Simons, legal officer at free expression advocacy group Article 19.
"This is a very good step forward. But ideally they should be defending the rights of their customers to operate without censorship."
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