Xbox Live users are now free to express their race, religion, nationality and sexual orientation in profiles at the popular online videogame community.
Microsoft on Friday modified the Xbox Live code of conduct for some 23 million members of the network accessed through Xbox 360 videogame consoles.
"Under our previous policy, some of these expressions of self-identification were not allowed in Gamertags or profiles to prevent the use of these terms as insults or slurs," Xbox Live general manager Marc Whitten said in a letter to users of the service.
"However, we have since heard feedback from our customers that while the spirit of this approach was genuine, it inadvertently excluded a part of our Xbox Live community."
Gamertags are names players use to identify themselves in the online community.
The policy change is accompanied by increased enforcement to prevent people abusing the once-banned terms, according to Whitten.
Xbox Live provides a social network where videogame lovers can play with others online, download extra content for titles, share pictures, stream films, and other take part in other activities.
"I truly believe that our diversity is what makes us strong: diversity in gaming and entertainment options, and diversity in the people that make up this amazing community," Whitten said.
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