YouTube has launched a fresh Movies category on its website, gathering about 400 full-length films for your on-demand viewing pleasure, all free of charge.

The renewed section, which is actually more like the next step in previously announced projects, comes courtesy of deals the Google company struck with U.S. studios like Lionsgate, MGM and Sony Pictures and UK service Blinkbox.

Update: Google checked in to clarify this is a UK announcement only and doesn’t affect the US Movies section announced last year (see link above).

In addition, the company wanted to make clear that the MGM / Lionsgate / Sony Pictures content is currently only available in the US, not in the UK.

What can you find there? Loads of Bollywood flicks, a bunch of Bruce Lee and Jackie Chan films, obscure horror movies and cartoons, among many other sections.

“This is one of many efforts to ensure that people can find all the different kinds of video they want to see, from bedroom vlogs and citizen journalism reports to full-length films and TV shows,” YouTube head of video partnerships Donagh O’Malley told The Guardian.

“We hope film lovers enjoy the range of titles in this free library, whether catching up on a mainstream hit or delving into the vast archive of classic films from decades past.”

Personally, I haven’t spotted many mainstream hits or real classics in the catalog, but maybe it’s just me. Ah well, off to watch Teenage Devil Dolls.

However, of course, the UK startup in this space which already has tonnes of traction via its DVD rental business is Lovefilm which already has streaming available. And Blinkbox is also competing with PS3′s own movie rental and to-own VOD service.

So this makes it yet another attempt to get traction for blinkbox, which started off as a service letting users overlay a video clip taken from a movie or TV show with a personalised message at the beginning. It was a viral advertising play essentially. It did ad deals with the likes of Pizza Hut.

Then in 2009 it started to offer full movies as downloads of streaming, signing UK deals with Hollywood studios including Universal, Warner Bros and Paramount.

But it’s unlikely blinkbox can catch up just by being on the S3.

That said, blinkbox says it is booking over 1 million unique monthly UK visitors accessing its movie streaming site by laptop or home PC already.

Rental prices start from 39p for a TV episode and movies start from 99p. These videos can be streamed directly from blinkbox.com an unlimited number of times within a 24 hour period, starting from the moment when a user first plays the title. Titles purchased on a ‘buy and keep forever’ basis cost from 89p for a TV episode and from £2.99 for movies. These titles are stored in the user’s library at blinkbox.com and can be viewed an unlimited number of times streaming them online.

Seeing BlinkBox, arguably, go a little up market with the BFI partnership sits slightly at odds with the company’s recent credit crunch-busting Pizza Hut promotion or its long term ‘viral’ marketing strategy whereby users can create movie clips – referred to as ‘Blinks’ – to share with friends via email or SMS. But hey, more choice is always welcome.

The new BFI partnership gives users of the UK service access to the institute’s “world-renowned catalogue” of classic British films on a free ad-supported basis, with 37 feature films being made available including Love is the Devil (featuring Daniel Craig), Caravaggio (directed by Derek Jarman), The Draughtsman’s Contract (directed by Peter Greenaway) Distant Voices, Still Lives (directed by Terence Davies) and further films directed by Bill Douglas and Alex Cox.

Additionally, BlinkBox will be offering a BFI ‘Feature Film of the Month’, for purchase and/or rent via streaming or downloading, the first of which will be Stephen Dwoskin’s “challenging experimental” film Central Bazaar.

The service already has licensing deals with a number of studios including Warner Brothers, Universal Pictures, Paramount Pictures, Aardman Animations. Discovery Networks and FremantleMedia.

BlinkBox was founded by Michael Comish (CEO), formerly managing director of 4 Services at Channel 4, and Adrian Letts (COO), formerly with the mobile content team for Vodafone, and has backing from Arts Alliance, Eden Ventures and Nordic Ventures.

There’s a pretty deep catalog of movies and TV shows to view. The company’s business model is to pitch buying or renting the movie or tv show after viewing the clip. They’ve built their own (heavily DRM’d) platform for delivering this content to buyers, although it only works on Windows machines at this time.

The concept is similar to Slingbox’s Clip+Sling, which allows Slingbox users to create short content clips and share it with friends.

The site is not working 100% for me – embeds don’t work and most of the clips can’t be selected when creating a blink. This may be pre-launch jitters, or licensing issues restricting me because I’m U.S. based (it’s launching only in the UK for now).

We have more on this at TechCrunch UK.