Asda's sales fell 2.7 percent over the 12 weeks to July 19, reducing its market share to 16.4 percent from 17.0 percent in the same period last year, researcher Kantar Worldpanel said.

That meant Sainsbury's overtook Asda with a market share of 16.5 percent, even though its own sales fell 0.3 percent in the period.

All of Britain's so called "big four" grocers -- market leader Tesco, Sainsbury's, Asda and No. 4 player Morrisons -- have cut prices in an attempt to stem the loss of shoppers to fast-growing discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL].

The industry price war has hurt the big four's sales on a value basis, as has record commodity-led food deflation.

Analysts reckon Asda is particularly suffering because it has reduced prices without getting the boost to volume it was looking for, reflecting a difficulty in attracting more upmarket customers.

In May the firm reported its worst quarterly sales fall in more than five years, but chief executive Andy Clarke insisted its long-term strategy was the right one. [ID:nL5N0YA2RW]

Analysts say the pressure is now mounting on Clarke, the longest-serving boss of a big UK supermarket after management change at all of Asda's major rivals over the last year, with the presentation of the firm's second quarter results on Aug. 18 seen as a possible crunch point.

Kantar Worldpanel said Tesco's sales declined 0.6 percent over the 12 weeks, while No. 4 player Morrisons' fell 0.1 percent.

In contrast Aldi and Lidl posted sales growth of 16.6 percent and 11.3 percent respectively, lifting their market shares to a record 5.6 percent and 4.0 percent.

Overall, grocery sales increased by 0.8 percent over the 12 weeks compared with a year ago, while grocery deflation was 1.6 percent.

"The continued slow growth of the overall market can be explained by minimal volume growth and lower like-for-like prices, both as a result of cheaper commodity prices and the fierce competition between supermarkets," said Fraser McKevitt, Kantar Worldpanel's head of consumer and retail insight.

He said prices were projected to start rising again by early 2016.

Shares in Sainsbury's were up 0.6 percent at 0954 GMT. Morrisons was up 0.3 percent, while Tesco was down 0.4 percent.

(Reporting by James Davey; Editing by Mark Potter)