Peter Molyneux has confirmed that Fable III will be released in episodic chapters on Xbox Live Marketplace “soon after” the retail release of the full game in October. The news comes from GameHorizon meet in Newcastle earlier today.

Much like Fable II, the game will be sold in episodic chunks: “Soon after the retail launch we’re doing episodic,” Molyneux confirmed. “We break it down in chapters. We give away the first chapter entirely free, the first hour. When you reach a certain point in the game it says ‘thank you for playing the pilot of Fable 3, do you want to spend an extra 2-5 or whatever dollars to buy the next episode, or buy the whole lot?’ Press ‘yes’ and you will immediately continue playing.”

More on this as we get it. Fable III is out on October 26th.