Japan's Sharp Corp said on Thursday it would start production of small display panels for use in smartphones at an existing TV panel plant this year, but declined to comment on prospects for an additional line at a disused factory.

The previous day, the company denied a report in an industry newspaper that Toshiba Corp had been chosen to produce small liquid-crystal display (LCD) panels for Apple Inc, and that Sharp had been dropped as a supplier.

Sharp said in a statement it would start production of smartphone panels alongside TV panels at the Kameyama No.2 factory in Mie Prefecture this year, but executives declined to comment on the fate of the company's Kameyama No.1 factory.

Sources with knowledge of the matter told Reuters in December that Sharp was considering building a new production line for smartphone panels at the Kameyama No.1 factory. The building has been empty since Sharp sold the TV panel-making equipment to a Chinese rival.

Demand for small panels continues to grow, with Apple announcing on Wednesday it had sold 18.65 million iPhones in the March quarter, well ahead of the 16 million expected.

Sharp already produces small panels at two other factories in Japan.

(Reporting by Reiji Murai and Isabel Reynolds; Editing by Edmund Klamann)