Provisionally dubbed the "X-Class", the rumoured baby Benz would be developed in partnership with Renault-Nissan and slot in below the A-Class (pictured) and above the smart fortwo, to do battle with the Audi A1, MINI Cooper and BMW i3.
According to British auto outlet car Online, the X-Class will be four metres in length and sit astride a platform that will be shared with the next generation of Nissan and Renault sub-compacts.
But don't expect it any time soon. car's sources say the X-Class is still in the conceptual stage and won't debut until 2018.
When it does eventually arrive, the X-Class will reportedly be offered in two variants - a compact crossover, and an MPV-style small wagon. The Renault-sourced diesel and petrol engines will range in size from 1.0 to 1.5 litres, and will feature turbocharging, direct-injection and Mercedes-designed heads.
The X-Class platform will be based upon that used by Nissan and Renault, but with plug-in reinforcements to improve chassis dynamics and crash safety. Due to cost constraints the rear axle will likely be a simple torsion beam, but Mercedes-Benz isn't expected to skimp on safety equipment or luxury appointments.
Expected to be sold in Europe, North America and China, each X-Class bodystyle could add as much as 150,000 sales per annum to Mercedes-Benz's total. What proportion of all Mercedes sales that will equal has yet to be determined - after all, 2018 is a long way off.