Amazon, the world’s largest online retailer, is reportedly to follow up the launch of its latest 7-inch Kindle Fire tablet with a device that has a slightly larger form factor, featuring an 8.9-inch display – sources have told Asia industry website Digitimes.

The retailer was tipped to debut a 7-inch and 10.1-inch custom Android-powered tablet in 2011, but launched the 7-inch Kindle Fire in September, resulting in speculation that the launch of the bigger device would be put back until the start of the new year.

Sources in Amazon’s supply chain have now indicated that the retailer’s panel suppliers have begun to prepare for production of 8.9-inch displays:

Amazon’s current 7-inch panel suppliers Chunghwa Picture Tubes (CPT) and LG Display (LGD) reportedly have begun to prepare production capacities for 8.9-inch displays, added the sources.

That isn’t to say that the 10.1-inch tablet has been abandoned. Insiders have also indicated that Amazon may choose to invest heavily in its tablet lineup, debuting 9.7-inch and 10.1-inch models in 2012. If true, the company would adopt a similar strategy to Korean electronics giant Samsung, which offers a large number of tablet devices between the 7-inch and 10.1-inch form factors.

Amazon would likely undercut the price of rival Android tablet makers, offering a loss-leading price to ensure sales and then double-down on its value-added services including Amazon Prime and its retail and virtual offerings.