The device, codenamed Superman, will be the first
Details of the planned Windows 8.1 releases were reported by technology website The Verge.
It said that the Superman device - with a five-megapixel foward-facing camera and a 4.7-inch screen - was revealed at an internal company meeting this week.
Tech blogs says the camera's position suggests it is optimised for self-shot photographs - known as selfies.
It is due to be released in August, according to the report.
There is a second handset planned, the site says, known as Tesla.
It is believed to be an affordable "high-end" phone which will replace the Lumia 720 model.
The demonstration of the phones to staff appears to suggest that the phones are close to release.
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