The new Xbox One model boasts a terabyte of space that will likely appeal to players who are increasingly installing games as digital downloads instead of opting for disks.
Microsoft's move came amid rumors that rival Sony plans to show off a new one-terabyte PlayStation 4 at a media event slated to take place yesterday before the E3 show floor opens the following morning.
"Since Xbox One launched, one of the most frequent requests from fans is to add more storage to their consoles," said Microsoft's Larry Hryb, who blogs for the Xbox team using the gamer name "Major Nelson."
Current model Xbox One consoles with 500 gigabytes of storage will remain USD 349, which was a USD 50 price cut that had been billed as temporary.
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The new Xbox One will come with an improved controller, according to Hryb.
Microsoft also said that later this year it will begin selling a USD 25 adapter that will allow controllers to be used for Xbox-style play on personal computers powered by the coming Windows 10 operating system.