The rumour mill has been grinding on about a possible smaller version of Apple’s iPad, and now the Wall Street Journal is adding some oil to the fire.

WSJ claims Apple is already working on a more compact iPad version, with a screen resolution of 1024x768. Rumours of a 7.85-inch iPad originally came to light last October, after suppliers spilled the beans on Apple’s plans.

However, Apple is still playing the secrecy card and details are scarce. Two years ago Steve Jobs dismissed small tablets altogether, saying they were simply too small for “great” tablet apps. While this might be true of high end tablets, small 7-inchers like Amazon’s Kindle Fire are doing quite well.

At this point it is too early to know for sure, but if Apple chooses to introduce an iPad mini, it will probably end up being the iPhone 3GS of tablets. It will probably feature somewhat older processors and a low resolution screen. The next generation iPad is rumoured to feature a hi-res display and new processor, so the iPad mini could end up with an A5 SoC and 1024x768 screen, which is what you get on an iPad 2 today.

More here.