We've heard rumours about a next-gen version of Valve's Source Engine being in development, some of which even came from code inside Source Filmmaker. But Gabe Newell has finally gone on the record (see for yourself below at 6:14) to state that Source 2 is in the works, it is a brand new engine and it's only waiting for a game to release it with.

Naturally, our excitable minds immediately leap to the conclusion that it will be used on Half-Life 3 and that Valve isn't ready to announce that game yet. Especially as the original Source was made for Half-Life 2. But then, we keep expecting Half-Life 3 at every major gaming event and it just never shows up.

The original Source Engine runs everything from Half-Life 2 and Portal to Team Fortress 2 and Left 4 Dead. It was designed to be incrementally upgraded, which is why it's powered top-end games for so long. But the base code is getting old, so the existence of a brand new, next-gen version is definitely worth getting excited about. More as soon as we have it.

Source: Develop