Rachel Watts, senior producer, Yahoo Australia said that the changes to the company's Australian customers' e-mail inboxes would start to take effect from tomorrow.
Watts said the decision was based on feedback from customers tired of having to maintain their e-mail boxes everyday and partly by competitive forces.
"Yahoo mail is one of our biggest properties and we know that one of the biggest drivers on the Internet is e-mail, so we had to make sure our e-mail service is as competitive and as good as possible for our users," said Watts.
The storage boost has been anticipated ever since arch-rival Google announced plans to launch a free e-mail service called "Gmail" with 1GB of storage in April. While Gmail has raised privacy concerns -- because of Google's plans to scan e-mail text to guide its Web advertising -- it has also raised the storage bar for Web mail.
"Obviously, with our competitors changing storage size, it's something we've taken into account," said Watts.
The storage boost will be delivered as part of an overall renovation of the Web mail product which will include an improved e-mail search tool and a new interface. The company claims it will "finesse the look and feel" of the current interface to make the system more user friendly.
Brad Garlinghouse, Yahoo! US's vice president of communications products said the company will free 50 million identities into circulation. That means identities that have remained dormant will become available again for general use. While Yahoo has maintained a policy of recycling user identities after six months of dormancy, the company had taken a "very conservative approach" to offering these names back to users, he said.
Jim Hu contributed to this report.