Project Scorpio, which will have the ability to power virtual reality experiences and 4K gaming, is expected to be available during the holiday season in 2017.
The console will be compatible with Xbox One games and accessories. Details on its pricing were not disclosed.
Sony Corp also said at the conference it would launch its virtual reality headset for PlayStation in the United States by mid-October.
Sony said it would add new titles to its PlayStation console, including Marvel's Spider-Man, God of War and Call of Duty: Infinite Warfare.
Microsoft launched a partnership with Oculus Rift last year, which made some Xbox One games playable on Oculus' virtual reality platform.
The new Xbox One S console, an updated version of the Xbox One launched in 2013, will bring new features such as streaming support for 4K videos, which provides four-times the resolution of high-definition content.
The Xbox One S will be available in August and its base model will be priced at $299 (roughly Rs. 20,000).
Microsoft also announced a number of new games at the conference, including Gears of War 4 and Forza Horizon 3.
The company also introduced Xbox Play Anywhere, that allows gamers to buy a game once and play it on both their Windows 10 PC and Xbox One console.
© Thomson Reuters 2016
Wondering which were the best games announced at E3 2016? You can listen to our podcast via iTunes or just hit the play button below to find out.
Get your daily dose of tech news, reviews, and insights, in under 80 characters on Gadgets 360 Turbo. Connect with fellow tech lovers on our Forum. Follow us on X, Facebook, WhatsApp, Threads and Google News for instant updates. Catch all the action on our YouTube channel.