The Xbox Live-exclusive was confirmed at this year's Spike Video Game Awards (VGAs), where its debut trailer was shown.
Alan Wake's American Nightmare sees the game's protagonist go up against the evil Mr Scratch, who appeared in the original. Teaser imagery from the title was released by Remedy last month.
"I've seen the game, I've seen the trailer we're showing and even though it's going to be a downloadable game, it's not a small game," said VGAs organiser Geoff Keighley (via CVG).
"I mean, it effectively is, I think, Alan Wake 2 when you really look at it and look what they're doing with that game. It's really ambitious, beautiful technology and I think people are going to be really excited about it."
Keighley continued: "So I think one thing that's happening and will happen over the next year is the idea of downloadable games will change and it won't necessarily mean small experience."
Alan Wake's American Nightmare will be available through Xbox Live Arcade in 2012.
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