Dubbed as Project Dragonfly, it has been in the works since spring of previous year.
It comes as China steps up scrutiny into business dealings involving United States tech firms including Facebook.
Andy Tian, a tech executive who formerly led mobile strategy and partnerships for Google in China, said the Chinese tech companies that now dominate search can't compete with Google's product.
"Google said it wouldn't bow to Beijing's censorship, and it should stick to its word, especially now that it's canceled its partnership with our military". A final version of the app could be launched within six to nine months, it said.
"As a Chinese citizen working for a company that my parents and relatives can't access is demotivating", one employee wrote on an internal messaging board. He added he transferred from the unit in order not to be involved.
Fei-Fei Li, a Stanford researcher who joined Google as its chief artificial intelligence scientist in January 2017, said in a blog post at the time, "AI and its benefits have no borders".
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It is easy to dismiss any argument about Project Dragonfly by invoking the slippery slope fallacy card, but in this case, the consequences could be much worse than imagined.
He has continued to say that the fact that the world's largest search engine succumbing to China's censorship laws will send a negative signal concerning the right to information and free-speech, making people believe that nobody will ever bother, or should, challenge the censorship any more.
"We provide a number of mobile apps in China, such as Google Translate and Files Go, help Chinese developers, and have made significant investments in Chinese companies like JD.com", spokesman Taj Meadows told AFP.
"For the world's biggest search engine to adopt such extreme measures would be a gross attack on freedom of information and internet freedom".
Beijing-based Baidu tumbled 7.7 per cent to US$228.07 as of the close of trading on Wednesday.
Around eight years ago, Google had withdrawn from the Chinese market to protest against the censorship in the country.
Amnesty International said Google should not proceed with the programme. For the most part, Google search is inaccessible thanks to the "Great Firewall" that blocks many foreign internet services. In 2014 and 2015, Google developed a version of its Play app store that only included apps and services approved by the Chinese government, but that hasn't launched.
In addition to censoring sites such as the BBC, the New York Times, the Wall Street Journal and Wikipedia, the Chinese authorities also censor mentions of books that portray governments like China's in a poor light, such as 1984 and Animal Farm.