COULD Sony be working on a PlayStation branded smartphone to challenge the mighty iPhone?

Rumours are sweeping the industry that a PS phone is in the working and could be launched as soon as October to cash-in on the traditional Christmas rush.

According to respected website Engadget the new phone will use Google's much respected Android operating system.

That would mean it couldn't play PSP Go games but would open up a huge market for downloadable apps via the Android store.

Interestingly, the device is said to be a collaboration between the PlayStation team and Sony Ericsson which handles phone development.

Sources claim to have seen smartphone variants of major Sony gaming franchises including God of War and Little Big Planet.

They say a new area of Android Market would be created for games on the system.

Sony, predictably, refuses to comment on rumours and speculation.

But will a PS branded phone put a dent in iPhone sales?

Nokia went down the gaming avenue with its nGage and we all remember that, err, don't we?