The car is to be known as the Junior, and according to European reports it will be a sporting three-door hatchback based on the same underpinnings as the Fiat Grande Punto.
However, it will get a big power boost over the Fiat with a new 172kW 1.8-litre direct-injection turbo engine.
And to make sure it gets the power down it will have Alfa's Q2 all-wheel drive system.
Alfa Romeo hopes the addition of the Junior, which will slot in below the 147 replacement, the 148, will help boost the brand's annual global sales to 300 0000 units (a sizeable leap from the 126 000 cars it sold last year), and enough to bring Alfa back into a financial breakeven.
The car will be built in Italy at Mirafiori, outside Turin, possibly from 2008.