Here's why I'm envisioning:

1. A side game, produced separately from the main series continuity.

2. An all new cast. I'd keep it relatively small. A dozen or so fighters.

3. Modern, real world setting.

4. No magic or fantasy elements.

5. Basic story: An underground fighting tournament to the death with a shadowy underworld figure and/or group as its backer.

6. Character backgrounds: Criminals and gangsters looking to make names for themselves, undercover cops trying to infiltrate tournament, ex-pro fighters broke and willing to risk their lives for a huge payout, those out for revenge on other participants. The bad news for fans of female fighters: Women competing against men in a setting like this would be highly unlikely. Total sausage party.

7. Attention to physical reality. Characters would have the jumping abilities of actual athletic humans. They would not be able to continue a fight after sustaining injuries like the MK9 "X-Ray" moves (even if they weren't killed right away, they'd be unconscious or incapacitated by pain/shock/musculoskeletal trauma, etc).

8. Over the top projectiles and special moves of the traditional type would be right out. At most, a character would be able to throw a knife like Kano, but even then they wouldn't be able to keep mysteriously producing and hurling unlimited knives. Other projectile possibilities include shuriken, pepper spray, etc. Guns would be too much in a game that attempted to model their effects on a fight accurately.

9. Costumes again limited to what people might wear to an actual brawl to the death. No bright yellow ninja suits. MMA fighter attire would be a good source of models.

10. Regular movesets would be based on real world martial arts styles that would be effective in no-holds barred fighting situations (so-called "mixed martial arts", jiu-jitsu, kickboxing, military CQC systems, etc). Well known masters of these forms brought in to do consulting and motion capture. Much more depth in terms of modeling grappling, wrestling, and joint locks than most fighting games have.

11. Damage can degrade fighting ability. Leg damage could slow walking speed or even necessitate fighting from the ground for the rest of the match. A broken arm might be useless for punching.

12. Fatalities would be realistic, as well. No ripping somebody in half at the waist, exploding them, etc. Expect more in the way of stabbings, slit throats, curb stomps, stranglings, bludgeonings, and other such mayhem.

13. Mostly new cast for any sequels, as well. None of this ignoring the premise of the game entirely in order to keep everybody's favorite characters coming back time and again. People will die.