The steering wheel-shaped controllers mimic the physical sensations of race car driving for games such as "Forza Motorsport 2." About 230,000 have been sold to consumers, according to the company.
Microsoft said that owners of the controller should stop plugging it in, but said it is safe to use with battery power.
This is the second Xbox 360 problem this year. In July, the company said it expects to spend more than $1.3 billion to repair hardware problems in the video game console.
Microsoft didn't offer any estimate of the cost of fixing the controller problems.
Gamers can register online to receive a "retrofit," which Microsoft would send with instructions "if necessary." The company would not say what replacement parts it plans to send to customers.
Microsoft said it has not received reports of fire, injury or property damage as a result of the defect, and it is working with regulatory agencies such as the U.S. Consumer Product Safety Commission.
