Soviet High Command became interested in assault guns following the success of German Sturmgeschutz III SPGs. Assault guns had some advantages over tanks with turrets. The lack of a turret made them cheaper to produce. They could be built with a larger fighting compartment and could be fitted with bigger and more powerful weapons on a given chassis. However, assault guns could aim their cannons in high degree only by turning the entire vehicle, and were thus less suited for close combat than tanks with turrets.
In April 1942, design bureaus were asked to develop several assault guns with various armament: 76.2 mm ZiS-3 divisional field guns and 122 mm M-30 howitzers for infantry support, and 152 mm ML-20 howitzers for breaking through enemy strongholds.
A prototype assault gun, armed with the 122 mm howitzer and built on the German Sturmgeschütz III chassis was developed designated SG-122. Only 10 of these were completed. Production was halted when the vehicle was found to be hard to maintain and judged to be unsuccessful.
Simultaneously, a SPG based on the T-34 medium tank was also developed. Initially the T-34's chassis was selected for the 76.2 mm F-34 gun. This vehicle, the U-34, was created in summer 1942 at the design bureau of UZTM (Uralmashzavod – Uralsky Machine Building factory) by N. W. Kurin and G. F. Ksjunin. It was a tank destroyer with the same armament as the T-34, but because of the absence of a turret, the vehicle was 70 cm lower, had thicker armour, and was 2 tonnes lighter. It did not enter production.
UZTM then worked on combining features of the U-34 and the SG-122. Initial design work was completed between July and August 1942. The project emphasized minimizing modifications to the platform and the howitzer. It used the same chassis, superstructure, engine and transmission as the U-34 and was armed with a new 122 mm M-30S howitzer from F. F. Pietrow's design bureau. This vehicle also used the same gun bed cover and mountings as the SG-122, to keep costs low and simplify production. It had 45 mm thick frontal armour. The M-30S howitzer could be elevated or depressed between -3° and +26° and had 10° of traverse. The five-man crew consisted of a driver, gunner, commander and two loaders.
On 25 November 1942 the first U-35 prototype was ready. Trials ran from 30 November to 19 December 1942, and uncovered various faults in the design including insufficient elevation, a flawed shell transfer mechanism, poor ventilation for the crew compartment and the fact that the commander had to assist in operating the gun which made him unable to successfully carry out his other duties. The U-35 entered service with the Red Army as the SU-35 (later renamed SU-122) despite these faults.
Production SU-122s were based on an improved prototype built after trials were conducted. They incorporated several modifications including slightly less sloped front armour to ease production, modified layout of the fighting compartment (the location of crew member stations and ammunition racks were changed), fewer vision slots, and a periscope for the commander. The first production vehicles were completed before 1943.