The Surface Pro 3 will have a screen measuring 12 inches diagonally, up from 10.6 inches in previous models. Microsoft said it's also thinner and faster than before. The company said it worked closely with chip-maker Intel Corp. to maximize performance in a slim device.
Microsoft also collaborated with software developers such as Adobe to adapt Photoshop and other software to take advantage of the new tablet's hardware.
The Surface Pro 3 will go on sale Wednesday starting at $799.
Microsoft announced the device Tuesday at an event in New York.
The Surface is an important part to Microsoft CEO Satya Nadella's mobile-focused strategy. The company is trying to boost sales of Windows tablets and phones to stay relevant with consumers as computing habits change.
Microsoft's presenters spent much of the hour-long presentation comparing the Surface with Apple's iPad and MacBook Air laptop.
Panos Panay, corporate vice president for Surface Computing at Microsoft Corp., tried to make the case for the Pro 3 to replace both.
"This is the tablet that can replace a laptop," he said.
The first Surface came out in late 2012 to lackluster sales. The Surface 2's debut last October came with a greater marketing emphasis on tasks people normally tackle on laptops, such as creating documents and editing movies.
In the January-March period, revenue from Surface devices grew more than 50 percent from the year before to about $500 million. But that figure pales in comparison with Apple's reported $7.6 billion in iPad revenue for the same quarter.
The Surface line is notable for its built-in kickstand. Last fall's models made the tablets more comfortable to use on laps with a kickstand that works at two different angles. With the Pro 3, the kickstand can be adjusted to a range of positions, much the way a laptop's screen can be opened at various angles.
Microsoft also said it improved the touchpad on its optional keyboard cover. In addition, the Pro 3 comes with a stylus that feels like a real pen.
The Surface line puts Microsoft in competition with some of its own partners — the makers of tablets and laptops that use Microsoft's Windows operating system. Nadella sought to quell concerns by saying the company's goal was to create demand in new types of products and boost the entire industry.
"We are not building hardware for hardware's sake," Nadella said. "We want to build experiences that bring together all the capabilities of the company."
The vision of the Surface, he said, was to design a product that "takes the best of the tablet and the laptop" and enable people to read, create, write, watch and enjoy.