The revamped plane will be powered by engines from CFM International, a joint venture between General Electric Co <GE.N> and France's Safran <SAF.PA>. Deliveries are scheduled to start in 2017, Boeing said in a statement on Tuesday.
Boeing, which competes with Europe's Airbus <EAD.PA>, opted for the quick-fix "re-engining" plan, setting aside for now a longer-term redesign, after Airbus racked up 1,000 orders for its A320neo offering, which will also have new engines.
Last month, Airbus grabbed the largest share of a record order in July from AMR Corp's <AMR.N> American Airlines, once an exclusive Boeing customer.
The 737 and A320 compete in the market for jets with around 150 seats, the biggest segment of the global jetliner market and estimated to be worth $2 trillion over the next 20 years.
Boeing said its new 737 was expected to have 16 percent lower fuel burn than the current offering from Airbus, and 4 percent lower fuel burn than Airbus's future offering.
(Reporting by Karen Jacobs in Atlanta and Tim Hepher in Paris; editing by John Wallace)