The device features a display with two cameras that can be detached from the wrist for taking videos and photographs and would integrate with Facebook's suite of apps, including Instagram.
The news was first aired on technology website, The Verge which predicted that the device would be released next summer.
It also reported the device was set to be a controller, linking to planned augmented-reality glasses, which Facebook has made no secret of developing.
Facebook Reality Labs Vice-President, Andrew Bosworth seemingly lent credence to the claim, tweeting "We’ve said we want AR glasses to be truly useful—we’re investing in technologies across the board that will make that interaction feel more natural and intuitive. This includes research like EMG, haptics, adaptive interfaces that could come together in a wrist-based form factor."
However, a senior Facebook executive has since confirmed that the smartwatch is still in its early stages and may never be released to the public, telling the BBC "We're investing in technologies across the board... research doesn't always lead to product development."
AR has grown in popularity in the past couple of years, mixing projected images with the real world. People have been able to project live music concerts into their homes using just a smartphone screen or used AR to try out different items of furniture in their living rooms.
Other technology giants such as Apple are thought to be researching future mainstream products in AR, but Facebook is known to have expressed an interest in the commercial smartwatch space.