The encoding of the space close to the body, named peri-personal space (PPS), is thought to play a crucial role in the unusual experiences of the self observed in schizophrenia (SCZ). However, it is unclear why SCZ patients and high schizotypal (H-SPQ) individuals present a narrower PPS and why the boundaries of the PPS are more sharply defined in patients. We hypothesise that the unusual PPS representation observed in SCZ is caused by an imbalance of excitation and inhibition (E/I) in recurrent synapses of unisensory neurons or an impairment of bottom-up and top-down connectivity between unisensory and multisensory neurons. These hypotheses were tested computationally by manipulating the effects of E/I imbalance, feedback weights and synaptic density in the network. Using simulations we explored the effects of such impairments in the PPS representation generated by the network and fitted the model to behavioural data. We found that increased excitation of sensory neurons could account for the smaller PPS observed in SCZ and H-SPQ, whereas a decrease of synaptic density caused the sharp definition of the PPS observed in SCZ. We propose a novel conceptual model of PPS representation in the SCZ spectrum that can account for alterations in self-world demarcation, failures in tactile discrimination and symptoms observed in patients.