Unfortunately, there are very few current 3.5" Android phones on the market in 2016.
Manufacturers are trying to own the market by making phones with larger screen size(>5.0") and are caring less about the compactness of the phone. It is quite difficult to find phones with a smaller display right now. Right now there are no new stock Android phones (the closest thing you can get are Nexus devices running the now-default Google apps or installing a custom ROM on some phones), but there are few other options if you are willing to compromise.
1: The Moto G Generation 1
It is compact and small at 4.7in and has a brilliant display. It is very comfortable to hold and single-handed operation is a zing. The best part is that it runs stock Android out of the box and can be upgraded to Android 5.1.1 officially. There are unofficial ROMs that will upgrade it to Android 6 Marshmallow too if you choose to use them.
Sacrifice: I'd say it's the perfect bang for the buck. The battery is average; it's not great nor is it bad.
2: The J series by Samsung
I'd recommend the J2 as it is the smallest of the J series at 4.7in with reasonable specs and an sAMOLED (Super AMOLED) display.
Sacrifice: It is clearly not an iPhone killer and runs Touch Wiz which is, according to my experience, unrefined and hogs a lot of RAM.
If you're willing to get a phone that isn't running Android, then I'd suggest you go for the new iPhone 6S. If you still want to have an Android phone, by sacrificing compactness you could go for the Moto Turbo (1, 2, or the new Z variant) or the Samsung flagships the Galaxy S7 and The Galaxy Note 5 (they can be flashed to stock Android or use custom launchers) which all have much higher specs and better performance than my other reccomendations.