Speaking to the Financial Times, Microsoft's Robbie Bach has confirmed the Xbox 360 Arcade console.
"Arcade becomes [for us] the ability to bring in a new set of audiences," he said. "They're probably a little bit more casually focused, they're looking for a new family experience, or they're more price focused."
The Arcade model will retail for USD 279, and will include a wireless controller and a 256MB memory card. The console will have HDMI output.
The package will also contain five Xbox Live Arcade games, hence the title, but it is unclear whether these are full versions or merely demos. Since the system does not have a hard drive, the arcade titles are likely to come on a separate disc.
While the Xbox 360 Arcade console had been widely rumoured, Bach's statement marks the first time that Microsoft has confirmed its existence.
It is expected that the Arcade console will replace the current Core unit.