Nintendo continued to dominate video game sales in May, with strong sales of the Wii helping to drive overall industry sales up 37 percent compared to a year ago. But the PlayStation 3 showed some strength, outselling the Xbox 360 in what has become a horse race for second place in the console battle, according to market researcher NPD Group.

U.S. video game industry sales for the month were $1.12 billion, up from $816.3 million a year ago. The Wii led console sales with 675,100 units sold. The Sony PS 3 sold 208,700 units, beating Microsoft’s 186,600 units sold. The Nintendo DS continued to win the portable gaming war, selling 452,600 in the month compared to 182,300 units for the Sony PlayStation Portable.

Overall game sales grew 45 percent to $536.9 million from $380.8 million. Year to date, U.S. video game sales are up 32 percent to $6.6 billion, an amount that is greater than the entire industry’s size in 1997, said Anita Frazier, an analyst for NPD. The industry is on pace to hit $21 billion to $23 billion in 2008. Both the Nintendo Wii and Nintendo DS have been on top for four consecutive months now. Nintendo’s biggest problem is that it can’t make Wii consoles fast enough.

Frazier said that the success of Grand Theft Auto IV, which continues to be the overall top-selling game, isn’t yet translating into big hardware sales for either the Xbox 360 or the PS 3. As NPD measures it, U.S. sales of GTA IV have topped 4.2 million units sold. Guitar Hero III from Activision has sold 2.5 million units so far this year, while Electronic Arts’ rival title Rock Band has sold 1.3 million units.

In June, Sony said it hopes for another big month with the launch of “Metal Gear Solid 4: Guns of the Patriots,” a highly anticipated title from Konami. Nintendo, meanwhile, is expected to get a benefit from sales of “Wii Fit.”

GamesBeat Gift Guides: Everything we recommend this holiday season