Apple iPhone is no doubt very popular cell phone these days, but since it is not really affordable and requires signing a contract with a pre-specified operator, its actual market performance may be limited by these factors. However, some believe that cheaper version of the iPhone – perhaps, it’ll be called iPhone nano – is on track to launch later this year.

A source, which is claimed to be familiar with the matter by the UK-based DailyMail news-paper, is quoted as saying that Apple iPhone nano is set to be available in shops in time for Christmas for £150 ($291) without a need to sign a contract. Experts expect the alleged iPhone nano to become a popular gift for Christmas.

“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. 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 industry sources is quoted as saying.

Currently customers of O2 in the UK have to pay £99 ($192) for iPhone 8GB or £159 ($308) for iPhone 16GB and sign a 18-months contract with £30 ($58) or £35 ($67) monthly payments. Other options include 18-months contracts with £45 ($87) or £75 ($145) monthly payments with free iPhone 8GB and 16GB, respectively. O2 plans to offer iPhone 3G without a contract later this year.

Specifications of a cheaper version of iPhone are not known.

The recently launched Apple iPhone 3G comes in a slightly different enclosure compared to the original iPhone – it is now made of plastic and is slightly thicker – but sports the same 3.5” touch-screen with 480x320 resolution, includes support for quad-band GSM, EDGE, UMTS, HSDPA, 802.11b/g Wi-Fi and Bluetooth 2.0 EDR wireless technologies. The iPhone 3G also features a 2 megapixel (2MP) camera, audio and video playback capabilities as well as assisted GPS function. Depending on the model, the iPhone 3G comes with 8GB or 16GB of memory.

Apple did not comment on the news-story.