Xbox 720 will launch next year without a disc drive.
That's according to MCV, which says Microsoft has been briefing partners under what sources describe as "the strictest NDA" they have ever encountered.
The site claims the console will "offer compatibility with some sort of interchangeable solid-state card storage, although it is not known whether this will be proprietary or a more standard format such as SD".
If true, Microsoft's digital move would usher in a new era for home games consoles and represent a major blow to the games retail market.
Microsoft said in response to the report: "Xbox 360 has found new ways to extend its lifecycle like introducing the world to 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. Beyond that we do not comment on rumors or speculation."