MSN has quietly re-launched its online radio service, backed by popular internet radio service, Pandora.com a music recommendation engine, which allows users to create custom radio stations and discover more artistes and songs, according to the users’ taste in music. Moreover, users who have already signed up with Pandora’s free internet radio, are now automatically on MSN Radio, along with the customized radio stations they created on Pandora.

The deal will give Pandora millions of new listeners, and it may give MSN Radio a much-needed boost in online radio to rival No. 1 Clear Channel and No. 2 Yahoo Launchcast. Because apart from Clear Channel, all of the major portals are losing ground in streaming radio to smaller outfits. What the MSN-Pandora deal shows is that they need to jazz up their services with music-discovery features or other tricks like social networking.

An MSN representative said that the Pandora deal is designed to improve MSN Radio with a free music recommendation engine. The service replaces the old free MSN Radio, as well as MSN’s former premium radio service. Listeners can still pay to get MSN Radio without ads.

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