Sony is reportedly planning to develop a new game handled with cellphone capabilities, according to Saturday report of the Nikkei business daily newspaper.

Sony plans to set up a project team as early as July to develop a new product that combines functions of its portable game player and Sony Ericsson's mobile phones, the Nikkei said.

The new device could help Sony compete against Apple' s popular iPod and iPhone devices.

Rumors for a new portable handheld device that would combine the entertainment features of Sony's PSP device while it would pack features of a high-end handled have been circulating online before the release of Sony's latest PSP Go device.

Sony has not officially commented on these reports.