Asia-based LG Display and AU Optronics have already began manufacturing the LCD screens for Apple's new device in September, Xinhua quoted The Wall Street Journal as saying.
Apple has kept the screen size of its iPad unchanged at 9.7 inches since the product debuted in January 2010.
In comparison, a smaller Apple tablet will feature a 7.85-inch liquid-crystal display with a lower resolution than the latest iPad, according to the Journal.
The launch of a smaller iPad is seen as Apple's move to stay competitive against rivals such as Google and Amazon, which have introduced 7-inch tablets at just $200.
The cheapest iPad starts from nearly $400.
The Fortune magazine Monday reported that Apple is rumored to be sending out press invitation Oct 10 to a special event, which might be on Oct 17 to unveil a smaller iPad.
Apple has not yet commented on the reports.