The product might be ready for launch in six months' time, reports the Chinese news site TGBUS.
[The existing iWatchz Q Series watchband for iPod nano]
The site reveals that sources in the supply chain have said that Apple is building a device using Intel chips and pioneering low-power Bluetooth technology.
The iWatch would be controlled by a 1.5" touchscreen, and Apple's Siri would allow users to control the watch using voice commands.
Rumours come after the makers of accessories for Apple already raised $10 million (£6.16 million) to make the Pebble watch, a Kickstarter project, using Apple's iPod nano.
The large total raised is said to emphasise the high demand for such a product, and has led people to question whether Apple will push to make a similar device first.
However, John Koetsier, writer for tech website Venture Beat, has said: "It needs to be much more than a watch, and much more than a way to communicate with the device that is already just a few inches away in your pocket.
"Would the company that reinvented the computer, the phone and the way we consume media be aiming so low?"
Photo gallery - Apple iPad mini launch:
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