It is understood the Japanese government could make the move in an attempt to contain a rise in covid-19 infections in Tokyo, the Sankei daily reported.
Local news reports have also said the “quasi emergency” that is currently in place in three prefectures neighbouring Tokyo, which will host some Olympic events, could be extended.
Authorities have already announced that they will scrap the Olympic torch relay in the capital over health concerns and flame lighting ceremonies will instead be streamed online.
It has been reported that organisers will meet to discuss a further limit on crowd numbers, with a complete ban on all fans in Tokyo being seriously considered.
A final decision, which will have a major knock-on effect on the Olympics, is due to be made on Thursday.
The Olympics start on 23 July and are set to run through until 8 August, despite widespread public opposition to holding the games during a pandemic.
Japan is also considering banning all spectators, reported Reuters news agency on Wednesday.
The organisers of the Tokyo Olympics have already banned overseas spectators and announced last month that venues can be filled to 50 per cent capacity, with a maximum of 10,000 domestic supporters, provided the current ‘quasi-state of emergency’ affecting Tokyo and surrounding prefectures is lifted on July 11.
However, a sharp rise in cases, with a daily count of 920 reported in Tokyo this week, tougher measures are likely.