Facebook worked on special software so it could potentially accommodate censorship demands in China, according to a report in the New York Times.
The social network refused to confirm or deny the software's existence, but said in a statement it was "spending time understanding and learning more" about China.
No decisions about the company's approach in the country had yet been made, a spokeswoman said.
The Electronic Frontier Foundation, a group which campaigns for better privacy online, told the BBC the project sounded "extremely disturbing".
"Kudos to the Facebook employees who brought this to the attention of the New York Times," said the EFF's global policy analyst Eva Galperin.
"It's very nice to know there are some principled people still working there."
The sources quoted by the New York Times - both current and former employees - stressed that like many pieces of software worked on internally, it may never be implemented.
Censorship concessions
Since 2009, the only way to access Facebook in China has been via a virtual private network - software designed to “spoof” your real location and avoid local internet restrictions.
Facebook, which has 1.8 billion active users, is aggressively looking to expand in parts of the world beyond its existing markets.
In the developing world, that means experimenting with new technology to connect rural areas.
