I dunno about in-universe, but the real reason is that the producer's felt the prop was too small and it wasn't obvious on screen that the actors were holding anything. The worry was that an uninitiated audience-member might wonder why destructive energy beams can shoot out of the character's fingers...
Yeah, the TNG type-1's were even smaller than the TOS type-1's, weren't they.
I think also that the TNG type-1s were no longer black like the TOS ones and more copper or brown which makes it harder to pick out from a distance. That and maybe they wanted to save money by not shooting a close-up insert of the person's hand with a phaser-1?
I don't recall ever seeing a closeup shot of a type-1 in TNG in someone's hand, unlike the type-2.