The outfit is keen to show how clever it is as it seeks to attract new customers and fuel growth following an IPO later this year.
The company will team up with manufacturing partners to develop the new chip, according to people briefed on the move who describe it as the most advanced chipmaking effort the Cambridge-headquartered group has ever embarked upon.
The company's owner, SoftBank seeks to drive up Arm's profits and attract investors to a planned listing on New York's Nasdaq exchange. The hope is that the prototype will allow it to demonstrate the power and capabilities of its designs to the wider market.
Arm has previously built some test chips with partners including Samsung and Taiwan Semiconductor Manufacturing Co, largely aimed at enabling software developers to gain familiarity with new products. However, the new chip is "more advanced."
Arm has also formed a bigger team that will execute the effort and is targeting the product at chip manufacturers more than software developers.