A new Muppet produced in European city (7)

I believe the answer is:

antwerp

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'european city' is the definition.
(I've seen this before)

'a new muppet' is the wordplay.
'new' becomes 'n' (common abbreviation eg NT for New Testament).
'muppet' becomes 'twerp' (I am not sure about this - if you are sure you should believe this answer much more).
'a'+'n'+'twerp'='ANTWERP'

'produced in' acts as a link.

Can you help me to learn more?

(Other definitions for antwerp that I've seen before include "Rent paw out in Belgium" , "European city" , "North Belgian port" , "New part of Dutch city" , "Busy Belgian port" .)

I've seen this clue in The Independent.

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