We present a detailed study of the ionized environment of the Seyfert 1 galaxy Mrk 704 using medium-and high-resolution X-ray spectra obtained with a long XMM-Newton observation. The 0.3-10 keV continuum, well described by a power law (Γ ≈ 1.86) and two blackbodies (kT ≈ 0.085 and 0.22 keV), is found to be affected by a neutral partial covering absorption (N H ≈ 10 23 cm −2 , covering fraction ≈0.22) and two warm absorber components. We identify a low-ionization, ξ ∼ 20 erg cm s −1 , and high outflow velocity, v ∼ 1350 km s −1 , phase producing the O vi and Fe M-shell unresolved-transition array. An additional high-ionization warm absorbing phase with ξ ∼ 500 erg cm s −1 and low outflow velocity, v ∼ 540 km s −1 , gives rise to absorption features due to O vii, O viii, N vi, N vii, and C vi. We also detected weak emission lines of He-like triplets from O vii and N vi ions, thus making Mrk 704 a Seyfert 1 galaxy with both warm absorption and emission. The emission lines are well described by two warm emitting, photoionized media with different densities but comparable ξ , suggesting discrete clouds of warm emission. The high-density phase (n e ∼ 10 13 cm −3 ) responsible for the resonance lines appears to outflow at high velocity ∼5000 km s −1 . The low-velocity, low-density phase is likely similar to the X-ray line emitting regions found in Seyfert 2 galaxies. The physical conditions of warm emitters and warm absorbers suggest that these clouds are similar but observed in absorption along our line of sight and in emission at other lines of sight. The unique line of sight passing close to the torus opening angle is likely responsible for the neutral partial covering absorption and our view of emission lines due to the suppressed continuum in this polar-scattered Seyfert 1 galaxy.