The device could use Willow Glass, a new type of flexible glass, allowing it to have a curved touchscreeen, the 'New York Times' said, citing "people familiar with the company's explorations".
An Apple watch could be used to make mobile payments, for navigation, to access messages from the wearer's phone or to monitor health and activity, the newspaper speculated. It would run iOS, the same mobile operating system as the iPhone and iPad, the 'New York Times' said.
Separately, the 'Wall Street Journal' reported that Foxconn, Apple's main manufacturing contractor, has discussed technologies that could address some of the technical challenges of such a device. In particular, it has concentrated on making more efficient displays and chips, which could allow a smart watch to run for longer without recharging.
Apple and Foxconn declined to comment.
The reports will fuel rumours that emerged from China late last year. Local technology blogs claimed Apple was building "a device using Intel chips and new, low-power Bluetooth technology. A 1.5-inch touchscreen or Apple's voice assistant Siri would be used to control the phone. (© Daily Telegraph, London)