Jon Venables the 27-year-old convicted murderer, who was controversially released on licence in 2001, sparked concerns from probation officers after revealing his identity and abusing drugs, the Sunday Mirror said today.
The newspaper also claims that Venables was recalled to prison on suspicion of child porn offences.
The fresh speculation over what prompted his return to custody just over a week ago comes after Justice Secretary Jack Straw refused to disclose the reasons, saying only that they related to "extremely serious allegations".
James' mother Denise Fergus said yesterday that Venables should lose his anonymity if he is charged with a new offence.
Her spokesman, Chris Johnson, said: "If after that, depending on the outcome of the court case, the powers that be decide that he should have some new identity yet again, then we'll deal with that when we come to it.
"But she can't understand why he doesn't appear in a dock under his own name, if that's going to be where he ends up."
Mr Johnson added: "She's appalled. She doesn't think that he should be at liberty anyway.
"He should really have served a sentence of something in the order of 15 years and should be coming up for parole now.
"In her mind, if there has been an offence committed, it means that that could have been avoided."
Mrs Fergus has demanded to know why Venables was put back in jail, and is meeting Mr Straw this week to discuss the matter.
The killer and his accomplice Robert Thompson were just 10 when they battered two-year-old James to death in Liverpool 17 years ago.
They were both released on lifelong licence in 2001 with new identities, requiring them to obey strict conditions such as not contacting each other or returning to the city where James was killed.
Reports last week said Venables has visited nightclubs and a pop concert in Liverpool and even watched Premier League side Everton at Goodison Park.
He is also reported to have worked as a nightclub bouncer and had a history of drug abuse.
Venables reportedly faces a looming return to court over the "extremely serious" allegations, causing a potential security nightmare for the authorities trying to preserve his lifelong anonymity order.
Justifying his decision not to disclose details of Venables' recall, Mr Straw said: "I said on Wednesday that I was unable to give further details of the reasons for Jon Venables' return to custody, because it was not in the public interest to do so.
"That view was shared by the police and the Director of Public Prosecutions.
"We all feared that a premature disclosure of information would undermine the integrity of the criminal justice process, including the investigation and potential prosecution of individual(s)."
He added: "Our motivation throughout has been solely to ensure that some extremely serious allegations are properly investigated and that justice is done.
"No-one in this country would want anything other. That is what the authorities remain determined to do."
David Blunkett, who as Home Secretary informed MPs of the Parole Board's decision that Venables should be released in 2001, backed his former Cabinet colleague's decision today.
Writing in the News of the World, he said: "The separation between judges and politicians is critical. The idea that we should abandon it in this case is understandable coming from James' immediate family.
"Even with a general election pending, the Government cannot and must not bend on this - not least because if Venables has committed a further crime, then that victim and their family deserve their day in court."
Mrs Fergus, 42, only found out about Venables' recall on Tuesday shortly before the news became public.
She disclosed her torment about being informed by a probation officer, telling a newspaper: "I threw question after question at her, but she blocked every one.
"My fear was that he'd hurt another child, or any human being.
"I just don't want anyone else hurt by Venables or Thompson. I wanted to know that he hadn't done to someone else what he did to James and me.
"All kinds of horrible thoughts were going through my head, and they still are because no one will tell me what he's done. It's wrong - as James's mother, I have a right to know."