The device, likely to be dubbed Xbox Surface, is said to be based on a custom ARM processor and high-speed RAM designed specifically for gaming tasks, The Verge reported.
The device won't run a full version of Windows, but instead will run a custom Windows kernel.
While messaging and other tablet functions may be supported, the devices main focus will be on gaming, The Verge said.
Specifications for an Xbox Surface 7-inch tablet, leaked in June, were apparently accurate and final work to bring the device to market is underway, sources said.
The Xbox Surface will probably debut ahead of Microsoft's future Xbox console, they said.