Microsoft Corp. acknowledged that the problem had reached “unacceptable” levels and announced a solution that requires it to experience some financial pain of its own — a charge of more than $1 billion.

The company extended the Xbox 360 warranty to three years from the purchase date for cases where hardware failures are accompanied by that telltale red flashing in the “ring of light” around the console’s power button. The company said it will replace Xbox 360s for free in those cases, and will retroactively reimburse anyone who previously was forced to pay for repairs related to that specific problem.

Without detailing the cause of the problem, Microsoft said it made improvements that should reduce the occurrences of the glitch in new Xbox 360 units. For problems not signaled by the three flashing red lights, the warranty will remain one year.

The costs associated with the new warranty offer will result in a pre-tax charge of $1.05 billion to $1.15 billion for the quarter ended June 30.