Barnes & Noble's wireless touchscreen device could be sold as soon as next month, said the newspaper, citing sources briefed on the matter. It did not disclose a retail price.
Barnes & Noble would neither confirm nor deny the report.
We have made no announcement about an electronic reader, Barnes & Noble spokeswoman Mary Ellen Keating told Reuters. We believe readers should have access to books in their digital library from any device, anywhere and anytime.
Forrester Research Analyst Sarah Rotman Epps said the bookseller could bite into Amazon's dominant market share if it uses all the tools in its arsenal.
They are very well positioned to become a serious threat to Amazon, she said, citing the company's brick and mortar retail stores where the product could be merchandised to customers.
Still, she added, even if their e-reader launch is successful, that won't necessarily save their business. Earlier on Thursday, Barnes & Noble forecast a same-store sales decline of 2 percent to 4 percent for its fiscal 2010, sending shares down nearly 12 percent.
Amazon shares closed up 1.3 percent.
The jockeying for position in the fledgling market has heated up in recent weeks, with device makers, retailers and even publishers like News Corp and Time Warner Inc hoping to cash in on digital books and readers.
In July, the Barnes & Noble unveiled an online digital bookstore that it touted as the world's largest, with over 700,000 titles that could be read on devices like Apple Inc's iPhone. It said then it would be the exclusive provider of digital content on the Plastic Logic e-reader, due in early 2010.
Amazon threw down a new gauntlet on Tuesday with a price cut of $40, making its popular Kindle now $259 in the U.S. -- some $100 lower than a year ago -- and offering an international version in 100 countries.
Top consumer electronics chain Best Buy said on Thursday it would carry Sony Corp e-readers for the first time at its stores beginning this weekend. It is also showcasing an e-reader by iRex Technologies that links to the Barnes & Noble digital store for the holidays.
E-readers, which some see as the future of reading, are expected to be the hot new gadget this holiday season and could provide a shot in the arm for traditional booksellers who are battling a long slump in sales as readers go online or turn to visual entertainment.
Whereas Amazon controls the distribution of the Kindle -- it is only available on Amazon.com -- other device makers without the built-in user database that Amazon enjoys depend on retail distribution.
The Journal reported that Barnes & Noble received approval from the Federal Communications Commission for its device in September.
(Additional reporting by Dhanya Skariachan and Gabriel Madway; Editing by Michele Gershberg and Carol Bishopric)