Microsoft has made plans to release its iPod killer – which will be capable of playing music and video – by this Christmas, according to Bloomberg News.

The device will also feature wireless internet connectivity, so users will be able to download music directly to the player without recourse to a computer, the report explains.

Microsoft has spent years relying on its hardware, software and service partners to dent Apple's market lead, but they have failed. With the iPod now commanding 77 percent of the $4bn US digital music player market, and iTunes commanding 72 percent of music downloads, Microsoft has chosen to throw its own hat into the ring.

The project is being overseen by the leader of Microsoft's Xbox team, the report states.

Interviewed in February, Microsoft CEO Steven Ballmer said his company was "committed to doing what it takes to succeed" in its battle with Apple.

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