A slim 'nano'-style version of Apple's 3G iPhone could hit the market by Christmas if rumours are to be believed.

According to The Daily Mail, an insider at Telefonica, which owns O2, said the device will be available on a pay-as-you-go basis and is expected to retail for £150.

Experts have speculated that the iPhone nano may feature a touch wheel interface similar to the iPod nano with the screen on the opposite side. Unlike the iPhone, it is doubtful that it will have full internet browsing functionality.