Updated at 3:35 p.m. ET to include a second statement from Microsoft.
Microsoft had a splashy showing of next-generation Xbox One hardware and games at the Electronic Entertainment Expo (E3) on Monday that included Bill Gates, Steven Spielberg and ...a rape joke?
During a demonstration of "Killer Instinct" a male producer of the game was matched up against a woman, who appeared to be bad at playing video games. The Atlantic Wire described that the woman is "playing a video game like a girl" -- suggesting that the scenario was set up to perpetuate a stereotype that women are not serious gamers.
"I can't even block correctly, and you're too fast," she says.
"Here we go. Just let it happen. It'll be over soon," he says.
The audience laughs at the remark that many have been interpreted as a rape joke. The banter continues between the two, further adding fuel to the allegations that the joke mimicked a sexual assault scenario.
"You have a fight stick," she says.
"Wow, you like those," he says.
"No, I don't like this," she says.
On Twitter, the audience reacted right away.
"Wow. This is really gross. Male overpowering a female in a game, so of course, rape joke. Good one, Msoft," @Vahn16 tweeted.
"Oh my god. One of the people just made a rape joke onstage and the audience actually liked it. That's sick," @IatosHaunted tweeted.
"Even if it was unintentional, Microsoft should've realized they shouldn't make a rape joke in an environment already toxic with misogyny," @stillgray tweeted.
"Let's bring a woman on stage and joke about how she's bad at games, and say stuff like 'relax, just let it happen, it'll be over soon'??" @Jonathan_Blow tweeted.
"Killer Instinct" is produced by Rare Ltd., which is a subsidiary of Microsoft Studios. Some alleged that the demo was scripted, but those claims were shot down by Microsoft.
A spokesperson for the company released this statement to CBSNews.com: "The comments in question during the 'Killer Instinct' demo were not scripted. The demo was meant to include friendly gameplay banter, and there was no ill intent."
Microsoft later apologized for the behavior of its employee and issued this statement from Microsoft Studios corporate vice president Phil Spencer:
"Yesterday, during the Xbox E3 briefing, one of our employees made an off the cuff and inappropriate comment while demoing 'Killer Instinct' with another employee. This comment was offensive and we apologize. At Microsoft, being open and respectful with others is central to our code of conduct and our values. Bullying and harassment of any kind is not condoned and is taken very seriously. We remain committed to make gaming fun for everyone, and in that effort, we must lead by example."
The games industry has grappled with sexism for years, even as the gender gap closes. According to the Entertainment Software Association, about 47 percent of gamers are women.
Watch the "Killer Instinct" demo at E3 below.