Abstract. We present a fully quantum mechanical theory for an interacting system of photons and Coulomb correlated electrons and holes in a semiconductor, using a pertubation series in the exciting laser field. The theory provides microscopic descriptions of nonlinear optical processes in semiconductors related to the electromagnetic field quantization. As an application of the theory we show that it is possible to transfer the exciton-exciton Coulomb correlation to photons, thus producing pairs of near-gap photons with a high degree of quantum entanglement. The photon pairs emerge from the spontaneous optical decay of biexcitons into two polaritons. The pair intensity correlations, calculated in the low density limit for a CuCl slab and for semiconductor microcavities, exhibit quantum features which can be observed by coincidence detection.