Mortgage lenders will now have to cut their rates in response to AIB reducing its variable, fixed and loan-to-value rates, experts said.
Stockbroking analysts said AIB has now put huge pressure on Bank of Ireland and Permanent TSB, in particular.
AIB's move to cut its variable rates by 0.25pc to 3.15pc from November will mean a huge gap emerges with the Bank of Ireland variable rate.
From next month, AIB's variable rate will be 1.35 percentage points lower than the Bank of Ireland one.
Bank of Ireland has a strategy to win mortgage business by offering up to 3pc of the value of mortgages in cash-back to new customers. It may now decide to weather it out, or only slightly tweak its fixed rate offering, analysts said.
But Permanent TSB is likely to be under pressure to respond to AIB's rate cut.
The move by AIB to cut fixed rates, and reduce its overall interest rate margins, also means there is now no expectation of a rise in European Central Bank rates until 2019 at the earliest, analysts said.
"AIB's move potentially puts more pressure on the other banks to respond," analysts at Goodbody Stockbrokers wrote in a note to investors.
Experts also say that AIB's move to cut its fixed rates from Monday by up to 0.5pc will help it protect its leading market position in a growing market.
Cuts are expected in the coming weeks from EBS and Haven, which are both AIB subsidiaries.
And the reductions are also likely to raise further additional competitive pressures across the market in due course, Goodbody said.
Investec's Philip O'Sullivan said that the European Central Bank and wholesale market rates of zero are set to continue next year.
It will be 2019 or 2020 before the "interest rate environment begins to normalise", according to Mr O'Sullivan.
Fianna Fáil finance spokesperson Michael McGrath said the AIB move shows that banks can afford to cut rates and still achieve more than healthy profits.
The onus now is on other banks to introduce further rate cuts if they don't want to lose market share, Mr McGrath said.
He also called on Bank of Ireland, Ulster Bank, Permanent TSB and KBC to introduce rate cuts.
Meanwhile, the AIB Group has been called upon to immediately cut the mortgage rates at its EBS and Haven subsidiaries.
There are indications the banking group may lower EBS rates in coming weeks, but the failure to announce EBS reductions along with the AIB cuts has annoyed mortgage campaigners.
Brendan Burgess of the Fair Mortgage Rates campaign welcomed the AIB reductions, but said a large gap had now opened up with EBS.
The EBS variable rate is 3.7pc compared with AIB's, which is due to fall to 3.15pc at the start of next month.
"EBS customers are furious that they are not benefiting from these rate cuts. EBS is funding its cash-back offers to new customers by charging existing customers more. The quicker the Dáil bans these cash-back offers the better," Mr Burgess said.