The device will be based on the PSPgo and will retain the PSP's familiar gaming controls, the report said.
The PSPgo is a smaller version of the PlayStation Portable and went on sale in late 2009. It links to Sony's PlayStation Network service and relies on a Wi-Fi link for downloads of software, music and movies. Despite extensive promotion by Sony, sales of the PSPgo have been weak and the company has been looking for a way to boost demand.
The new device is being developed by Sony Ericsson and will go on sale first in Europe and the U.S., according to the Asahi Shimbun.
"The report isn't based on anything that we have announced," said Ayano Higuchi, a spokeswoman for Sony. "We do not comment on rumor or speculation."
Sony has been avoiding comment on rumors of the PlayStation Phone for several months. Development of the device has been reported by several media outlets including The Wall Street Journal, and earlier this month a video appeared on YouTube that purports to show a development handset from Sony Ericsson.
Speaking to reporters last week in Tokyo, Kaz Hirai, head of Sony's gaming business, said that if Sony was to compete in the cell-phone gaming market it would be with a device that appealed more to core gamers.
He said the device would carry the PlayStation's DNA and match Sony's vision of gaming, which is different to those of companies developing Android and iPhone games.
Should Sony be about to launch the phone in the U.S., it could make an appearance at next week's International Consumer Electronics Show in Las Vegas. Sony typically uses the annual event to debut products and services that it plans to launch in the U.S. market in the first half of the year.
