The new Xbox has not been officially announced by Microsoft yet, but we're expecting an announcement in May.
Sources close to Microsoft told The Verge that Xbox Mini will be based on Windows 8 with a focus on casual games and entertainment services.
Exact hardware specs were not revealed, and may not be finalised, but the set-top box is said to put an emphasis on accessibility with fast boot times and always-on functionality for instant access to content.
Though not mentioned in the initial rumor, the always-on feature sounds remarkably similar to the cloud-based TV platform Microsoft is developing.
Latest Xbox Mini rumours
According to the report, Xbox Mini will serve as half of Microsoft's two system strategy for its next generation of game consoles.
Xbox Mini will allegedly target a more casual gaming audience, while the new Xbox, commonly referred to as Xbox 720, will offer a more traditional Xbox experience.
A rumour on VG Leaks suggests that the cheap-as-chips Xbox Mini would have no disc drive but would be able to stream Xbox 360 - not not gen - games via the cloud.
Microsoft has so far managed to draw both demographics to its Xbox 360, with both traditional games available alongside Kinect functionality and entertainment apps.
The move to segment the audience seems a risky one, but could pay off for Microsoft. Dedicated gaming systems are often seen as more intimidating to casual users who would prefer the convenience and simplicity of a TV set-top box.
This latest rumor suggests that Microsoft is planning to announce Xbox TV and Xbox 720 sometime in 2013 for a launch before the holidays.
Xbox Mini release date
Both VG Leaks and The Verge report that this low-cost Xbox machine will debut next year as opposed to releasing along the new Xbox console, which is expected to be released later this year in time for the Christmas silly season.
Xbox Mini price
The Xbox Mini price is suggested to be USD $149 (£97, AUD$141) or lower, putting it in direct competition with the USD $99 (£65, AUD$94) Apple TV.