The move, which could come as early as Wednesday, comes in the wake of yet another delay in shipping Vista, the long anticipated update to the client version of Microsoft's Windows operating system.
Sinofsky will head Windows development, reporting to Kevin Johnson, who will continue to lead the the Platform Products and Services division. Johnson's division will include eight new and existing organizations related to Windows and Windows Live, the source said.
Sinofsky, contacted by CNET News.com, declined to comment. Other Microsoft representatives declined to comment.
News of the management shake-up was first reported by The Wall Street Journal on Wednesday, citing sources close to the company.
On Tuesday, Microsoft announced that it delayed the mainstream launch of Vista until next year. Though businesses with volume licensing deals will get the code in November, it won't show up on new PCs and on retail shelves until January.
The Platform Products and Services division, which includes Windows, is currently run by Johnson and Jim Allchin, who last year announced plans to retire at the end of 2006, following the commercial availability of Vista.
Although Allchin has shared leadership of the division, he has shifted most of the management and financial responsibilities to Johnson, focusing largely on technical issues related to Vista.
Allchin's plan has been to retire later this year after Vista was finished. In a conference call on Tuesday, he noted that the technical work for Vista is still on track to be finished this year.
The company has been working for some time on how the technical leadership of Windows would be handled after Allchin's retirement.
Microsoft's Windows division has a history of delays, and management shake-ups to cope with them, said Jupiter Research analyst Michael Gartenberg. When Windows 2000 hit significant snags, Microsoft reassigned Brian Valentine, a product executive, to complete the development cycle, he noted.
"No doubt, I'm sure, the senior executives at Microsoft were pretty upset (with the latest Vista delay)," Gartenberg said. "Steven has a track record of shipping products (and he can) potentially take the reins and get the thing out the door and fix whatever process problems there are."
Sinofsky, who joined Microsoft in 1989 and who has a track record of shipping product updates on time, is a trusted lieutenant of Chairman Bill Gates and CEO Steve Ballmer, Gartenberg said. "Clearly things are not going super well with this project and it looks like it's time to bring a new sheriff to town," he said.
"It was already embarrassing when highly publicized features like WinFS were pulled. It's clear the whole Longhorn vision has been somewhat scaled down. When it ships, they really need to ship another Windows 95, not another Windows ME," Gartenberg said.
Windows 95 was viewed as a major enhancement over existing Windows 3.1 systems, while Windows ME was not stable and was not considered a breakthrough product.News.com's Mike Ricciuti contributed to this report.