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(Pocket-lint) - Microsoft is rumoured to be working on an Xbox set-top box that would offer casual gaming and all the entertainment functions of the current console, but without the capability of playing traditional AAA games like Halo 4 or Assassin's Creed III.

According to "multiple sources" talking to gadget site The Verge, the console - which Pocket-lint suggested Microsoft should make and sell back in June - would be a smaller, low-cost alternative to its Xbox console and allow the company to expand on its home entertainment offering to non-core gamers.

"We're told that the set-top box is part of a two-SKU strategy for Microsoft's next-generation of Xbox hardware that will be unveiled in 2013, with a release date ahead of the holiday shopping season," claims the site.

According to the site and its sources, the Xbox 360 TV will "run on the core components of Windows 8 and support casual gaming titles rather than full Xbox games typically found on a dedicated console".

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On the rumours, Microsoft has issued the following statement: "Xbox 360 has found new ways to extend the console lifecycle by introducing controller-free experiences with Kinect and re-inventing the console with a new dashboard and new entertainment content partnerships. We are always thinking about what is next for our platform and how to continue to defy the lifecycle convention." 

The rumours tie in with a lengthy blog post the firm published in June ahead of the annual E3 gaming conference in LA.

In it, Yusuf Mehdi, chief marketing officer for the company's interactive entertainment division, said the console would move away from being just that.

READ: Nintendo Wii U, Xbox SmartGlass and PS Vita: second screen entertainment explored

"To date, our success with Xbox has been led by a box in the living room. Moving forward, Xbox will go beyond the box to reach all new families of devices. Just as Xbox has grown to mean more than just games, it also is more than just a console. This year, Xbox becomes the premium entertainment service for Microsoft.

"Whether on your PC, tablet, TV or phone, Xbox will be a gateway to the best in music and video, your favourite games and instant access to your friends. With the launch of Windows 8, we’ll bring Xbox entertainment to everyone. With Xbox on Windows 8 devices, we rapidly accelerate the reach of Xbox entertainment from more than 60 million people to hundreds of millions of people worldwide."

Mehdi went on to say: "We understand that entertainment has become a multi-screen experience where you and your friends are watching TV, listening to music, and playing games while interacting with your tablets and phones in new ways. We’ve got ideas for making all the entertainment you love more personal, interactive and social across the devices you love - and on the phenomenal Windows 8 devices that are to come."

READ: Xbox Entertainment: Games, Video, Music, SmartGlass on all your Microsoft devices

Shortly after those comments, Microsoft launched - among other things - Xbox SmartGlass, its tablet and smartphone app that allows users to interact with the console.

We suspect that SmartGlass would be a key element of a set-top Xbox TV box and save Microsoft needing to include a controller with the TV-only device, and allow it to drive prices down even further.

Currently in the US there are two TV on-demand boxes that dominate the market: Roku and Apple TV, although Google is also trying to gain market share with Google TV. Roku, which launched in the UK in January this year, sees it as a core business, while Apple still sees the miniature set-top box as a sideshow.

If Microsoft is about to enter the market, things could get a lot more interesting.

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Writing by Stuart Miles.