The present invention provides a system for providing an improved compact power transfer unit for use in motor vehicles having a front wheel drive transverse based engine and transaxle, and, more particularly, to a power transfer unit for use with a transaxle arrangement capable of providing all-wheel drive or four-wheel drive. The present invention discloses a planetary gear utilizing a fixed ring gear, the planetary gear capable of selectively engaging a low range output from the power transfer unit for propelling the vehicle when driven in off-road conditions requiring higher torque and slower speeds. The vehicle driver can selectively engage a normal, high range where torque flows through the planetary gear directly to the drive shaft with no gear reductions, or the driver may selectively engage the low range where the torque flowing into the planetary gear is redirected and reduced thereby providing higher torque with reduced speed. A neutral range is also selectively engagable by the driver which decouples the planetary gear from the main output shaft whereby no power is transferred to the main drive shaft.