The world's largest Internet retailer is aiming to have the new e-reader in stores in July, said the source, who has direct knowledge of the matter but asked not to be named because Amazon has not yet made the decision public.

Amazon has been ramping up production of the new Kindle, which will run on E Ink's display, the source said.

Amazon's Kindle e-reader has been popular, but readers have had to buy an external light to attach to the device to read in the dark. The front light eliminates that problem.

"I do see demand for a front-lit Kindle," said Jennifer Colegrove, Vice President of Emerging Display Technologies at DisplaySearch, an NPD Group company, which monitors trends in the display sector.

There is a trade-off, she said: "Front-lit will consume battery power and (it'll) run out ... quicker."

Amazon also plans to launch a new tablet closer to the holiday season later this year, the source said. The new Kindle Fire is expected to have a bigger diagonal display of 8.9 inches, bringing it closer in size to Apple Inc's iPad. The company did not respond to calls or emails seeking comment.

"We don't comment on our customers' launch plans," said Sri Peruvemba, Chief Marketing Officer for E Ink Holdings, the supplier of Kindle's ePaper technology.

"E Ink is an innovator and for the past 10 years, we have consistently delivered new products, major enhancements to existing products, and unique designs, so it is not surprising that there is constant speculation about what we will do next," said Peruvemba.

While Barnes & Noble was the first to market with a glowing e-reader, there has been speculation about Amazon being a close second.

Amazon will launch the new Kindle e-reader in the touch 3G and touch wi-fi versions, the source said.

"They can afford to add a front light because the component is not very expensive and their display otherwise uses very little energy," said Colegrove.

An increase of about $10 above the current prices should be "quite reasonable," she said.

The source said Amazon was likely to keep prices the same, or raise them by a very small margin, if at all.

Some blogs had speculated on the possibility of a color-equipped e-reader, but the source said that there was very little chance of Amazon launching one this year. Though Amazon has held can talks with E Ink, the companies haven't reached any concrete decisions yet, he said.

Vinita Jakhanwal, an analyst at IHS iSuppli, which tracks electronic component supply chains, said when she looked at the color e-paper product in a trade show in October, that it needed "a lot of technological improvements" to be used in a products in large volumes.

"I doubt if the color Kindle is ready for a launch," she said.

(Nivedita Bhattacharjee in Chicago, additional reporting by Alistair Barr in San Francisco; editing by Gunna Dickson)

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