Apple is planning to release a smaller, 'nano' model of its iPhone handset in time for Christmas, according to UK Newspaper the Daily Mail.

The newspaper's report, which cited "an industry source," said the product would launch in the UK by mobile phone operator O2, but offered no clue when or if it would be launched elsewhere.

The report seemed to indicate the iPhone Nano would be a dumbed down version of the current iPhone 3G.

"The iPhone 3G has been the fastest-selling phone ever in the UK, but it is too expensive to be a realistic proposition in the pay-as-you-go market," the source told the newspaper. "However, a cut down version, with the candy bar shape of iPod Nano music players, would be a huge hit as a Christmas gift."

The newspaper suggested that the new iPhone Nano could have a touch wheel interface on one side and a screen on the other, meaning that calls would be dialed from behind and lack full Internet browsing functionality.

Apple has held a September iPod event the last several years. Observers say this year a revamped iPod Touch is likely to debut. In support of that suspicion, AppleInsider has reported that resellers have been told to expect shortages of iPods and Macbooks in the coming weeks.