US online new sources are suggesting that Microsoft is currently working on a next-generation Zune that will be aimed squarely at Apple's iPod Nano.
The rumours claim that a flash-based unit is nearing the design completion stage, that the product will be much smaller than the current 30Gb Zune and will boast additional features.
It is claimed that the device is three inches long, 0.25 inches thick and equipped witih a screen that covers 75 per cent of the front face of the player, reports US site Insanely Great Mac. The news source also suggests that Microsoft is also considering beating the Nano on storage capacity, too.
Microsoft launched the original Zune MP3 player in the US in September last year.