The software giant said that, once the "technical challenges have been overcome", the digitised books and documents will be made available on the British Library's website and on the MSN Book Search service slated to be launched in trial form next year.
Although some observers are comparing the announcement to Google's controversial Print project to digitise books in the US, Microsoft's move actually represents a continuation of its relationship with the British Library that goes back two years.
A spokesman at the Library admitted that the £1.4m investment is primarily about speeding up the digitisation of older books that the library had already started.
He confirmed that none of the books under consideration is under copyright and that copyright concerns meant that the project was restricted to books and documents that were published before 1850. Most of the titles to be digitised are much older.
Microsoft claimed that the new funding brings it into a "strategic relationship" with the British Library, suggesting that the deal will add to the level of content and value contained within the MSN portal.
Funding will commence next year with a plan to digitise 10,000 books in the first phase of work.
The British Library spokesman was unable to explain how Microsoft would benefit financially, bearing in mind that the materials would be available free on the Library's website.
Analysts, however, have suggested that Microsoft will sell search-related advertising around the content on its portal.
The deal is being compared to Google Print, a collaboration between the search firm and a handful of world-class libraries.
The growing relationship between Microsoft and the British Library is likely to be scrutinised by the European Commission, which recently announced plans to digitise Europe's visual and written heritage.
Microsoft has been working with the British Library over the past two years on developing the technology to create a national digital library.
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