"Microsoft's response to Nintendo's Wii will appear before the end of the year," says the report, which adds that the Xbox 360 motion-sensing device has been in the works since last summer.
According to MTV's source, Microsoft's effort is similar to Nintendo's but boasts an analogue stick and microphone built in, and doesn't require a Nunchuck plug-in extra.
Meanwhile the report adds that UK-based Rare "has been tasked with creating a unified interface and look for the controller" but "has had trouble hitting its deadlines".
Microsoft is said to be looking to unite both the Wii's more accessible styles of play with its own more hardcore gamer-oriented, and is specifically saying that developers will best appreciate the fact that games for the Nintendo console can be ported to the 360.
An Xbox spokesperson told MCV that the story was "just rumour and speculation".