It is also the latest example of how Google's outspoken workforce has agitated for changes to strategy.
Search terms about human rights, democracy, religion and peaceful protests will be among the words blacklisted in the search engine app, which The Intercept said had already been demonstrated to the Chinese government. Some employees have raised concerns that helping China suppress the free flow of information would violate these new principles.
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The workers asked Google to review ethics and transparency at the company. At the time, Chinese internet users marked the loss of Google's search engine by laying flowers at the company's Beijing offices in what became known as an "illegal flower tribute".
In April, thousands of staff criticised its work on a USA military programme developing artificial intelligence for drones. By June, Google had said it would not renew a contract with the Pentagon for AI work.
Google has not officially commented on the project, but following the letter, Google CEO Sundar Pichai told employees the project is still in early stages of development and it is still unknown if the search engine would launch at all. Dragonfly and Google's return to China raise urgent moral and ethical issues, the substance of which we are discussing elsewhere.
Over 1,400 employees reportedly signed a petition demanding more insight into the project.
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"We, the undersigned, are calling for Code Yellow addressing Ethics and Transparency, asking leadership to work with employees to implement concrete transparency and oversight process", the petition said.
Company executives have not commented publicly on Dragonfly and the remarks at the company meeting are the first time the project has been mentioned since details about it were leaked.
TAKING A STAND. Apparently, Google employees were not happy to hear about Dragonfly.
Mr Pichai told staff Google's mission was to "organise the world's information".
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Back in 2010 Google had an issue with Chinese hackers and in response pulled out all its major services from the country. The app is said to comply with Chinese government censorship guidelines.