Central Motor Co., an assembly unit of Toyota, will produce the model at a plant in Ohira, according to the person, who declined to be identified as the plans are private.
The carmaker showed a compact version of the Prius hybrid at the Detroit auto show last month.
Toyota is shifting production from its main manufacturing area as the strong yen hurts earnings from exports. Lower labor costs relative to Aichi Prefecture, Toyota's primary domestic production hub, and a nearby port may make Miyagi more attractive for exports.
Toyota spokesman Keisuke Kirimoto declined to comment on whether the company will build hybrids in Miyagi.
Toyota plans to begin selling a "city-centric" compact version of the Prius hybrid in the U.S. in the first half of next year. The car was first shown as the Prius C concept model at the Detroit auto show in January.
President Akio Toyoda has said the company will maintain domestic production of about 3 million cars. Toyota built 3.2 million cars in Japan last fiscal year out of 7.3 million worldwide.