A long 280 ks observation of the Seyfert 1 galaxy NGC 3783 with XMM-Newton is reported. We focus on the oxygen line complex between 17 and 24 A as measured with the RGS spectrometers. Accurate absorption column densities and emission line fluxes are obtained. We explore several options for the geometry and physical form of the emitting and absorbing gas. The lack of change in ionization in the absorber despite an increase in continuum flux during the observation restricts the high-ionization (O-K) and the low-ionization (Fe-M) gas to distances of at least 0.5 pc and 2.8 pc, respectively, away from the central source. Given the P-Cygni type profiles in the resonance spectral lines and the similar velocity widths, column densities, and ionization structure inferred separately from the emission and absorption lines, it is tempting to relate the X-ray narrow-line emitting plasma with the X-ray absorbing gas. Under this assumption, the scenario of dense clumped clouds can be ruled out. Conversely, extended ionization cones (r > 10 pc) are consistent with the observation independent of this assumption. These findings are in stark contrast with the picture of numerous clumpy (n_e > 10^9 cm^-3) clouds drawn recently from UV spectra, but it is consistent with the extended X-ray emission cones observed directly in Seyfert 2 galaxies.