The company is extending many of its premium services, including an iPhone and iPod app, to non-paying members.
It is also encouraging customers to import their music collection into Spotify, rather than Apple's system.
However, analysts have questioned how much impact the service can have, given iTunes' dominance and its close integration with Apple devices.Restrictions
At the heart of the update, which will be rolled out automatically from 4 May, is an attempt to make Spotify the sole music management platform used by its 10m members.
Currently, only those who pay a monthly fee of between £5 and £9.99 are allowed to import tracks bought through iTunes into their Spotify library.
That option will now be made available all Spotify customers, 90% of whom use the free, advertising-funded version.
The move will be widely seen as an attempt to placate fans who were angered by restrictions recently imposed on the service.
The limits saw the amount of music that free users can listen to halved. It also reduced the number of times an individual track can be played to to five.
Gustav Soderstrom, chief product officer at Spotify, confirmed that the company was aiming "to make iTunes redundant".
"We think it is a better experience. If it is not, people will go back to iTunes," he added.
He explained that customers had requested a greater tie-up between the music they owned and the service they used to create playlists.
"Users are juggling two products at the same time and they said they really wanted to synch their playlists with their iPods and iPhones," he said.
As well as allowing users to synch music with Apple products, Spotify is making its iPhone and Android apps available to non-subscribers.New clothes
The company has also hammered out a deal with record labels which centres around the creation of bespoke playlists.
It will now offer bundles of tracks for discounted prices. Ten tracks will cost £7.99, 15 tracks £9.99, 40 tracks £25 and 100 tracks £50.
Spotify hopes the innovation will breathe new life into its download service, which it admits has "been a bad experience" for users.
However, Mark Mulligan, an analyst with Forrester Research, was underwhelmed by the changes.
"They don't sound like great discounts to me. All it is doing is applying album pricing to playlists. You might even be able to do that on iTunes already," he said.
"I can see what Spotify is trying to do, it wants to acquire the clothes of the more robust music services by offering ways of buying as well as listening to music and creating an alternative music management platform."
He suggested that Spotify would always lack the clout of Apple.
"iTunes is a very bloated music management service but people use it because it is tied to their devices. Apple offers access to the cloud, it has a billing relationship with users.
"Managing music from Spotify doesn't really do much. People will still have to go back to iTunes to buy new tracks. It is hard to see significant numbers of people using it," he said.
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