The smartphone will run on Google's Android operating system like Amazon's Kindle Fire tablet, according to Bloomberg. Foxconn, which makes the iPhone is said to be working with Amazon to build the smartphone.
The news comes a day after we reported that Amazon might launch a Kindle Fire 2 tablet to rival Google's Nexus 7. Amazon is looking to also pick up patents relating to wireless technology with the aim of avoiding any allegations of infringing existing handsets like the iPhone and Samsung Galaxy S3.
A smartphone would give Amazon better range of hardware riding the success of the Kindle eReader and Kindle Fire tablet. It would also be another way to point users towards its downloadable content such as eBooks, music and apps.
Bloomberg suggests that the device would rival the iPhone despite the fact that previous Amazon hardware has been targeted at the lower end of the market.