Google is developing its own branded phone to sell directly to customers, in the internet company's latest attempt to make headway in the lucrative mobile market.

Google engineers around the world are covertly testing a new handset - known internally as "Nexus One" - that has been built in conjunction with Taiwanese manufacturer HTC and could go on sale next year over the internet, in a move that would bypass the mobile phone networks.

According to numerous reports over the weekend, the company is eschewing a deal with major mobile operators - the approach it has used in the past - in favour of selling the unlocked handset itself online. Though sales would bypass the networks, customers would still need to have a contract or pay-as-you-go agreement if they wanted to use the handset's ordinary phone functions.

Silicon Valley news blog Techcrunch - which broke the first news of the device last month - said that the handset will go on sale in the US in January, while the Wall Street Journal suggested that Google could link up with a partner at a later point, despite its decision to act alone so far.

The move could allow Google to more some of its own experimental ideas - such as internet calling service Google Voice, as well as the possibility that it could subsidise phone calls with advertising revenue.

The handset runs the company's Android operating system, an attempt to create a new platform with which Google can tackle more established rivals such as Nokia, Apple, Microsoft and BlackBerry maker Research in Motion.

The software - which is available for free - is part of an aggressive strategy Google hopes will help it force its way into the mobile phone market, which is widely seen by many in the technology industry as the next major frontier.

So far Google has been building the Android software, but leaving the design and sales of phones to the mobile operators - a strategy which mimics the model used by Microsoft. But sales of Android handsets have yet to take off, despite moderate success achieved by the recent US launch of the Motorola Droid (which will be marketed in Europe by T-Mobile as the Milestone).

With the continued success of the iPhone and BlackBerry - which are more tightly controlled by Apple and RIM - it appears that Google is testing whether taking a greater degree of control could help it make a significant breakthrough.

In a blog post published on Saturday, one of the executives working on the project said it was an "experiment with new mobile phone features and capabilities", but refused to divulge further information.

"At Google, we are constantly experimenting with new products and technologies, and often ask employees to test these products for quick feedback and suggestions for improvements in a process we call dogfooding," wrote Mario Querioz, the company's London-based vice president of product management.

"Unfortunately, because dogfooding is a process exclusively for Google employees, we cannot share specific product details."

Rumours of a so-called "Googlephone" have appeared with regularity ever since the internet company bought a Californian mobile software startup, also called Android, in 2005. Two years ago, the speculation began to reach fever pitch following: it emerged, however, that the company was instead building a new mobile operating system.

Google first unveiled the Android software in November 2007, but the first handset running the system did not go on sale until the following autumn. That device, the G1, was also manufactured by HTC, but sold through T-Mobile.

The new device, which was previously known as the Dragon, is a thin with no keyboard and a touchscreen display. Pictures purporting to show the handset indicate that its screen is slightly bigger than the iPhone, with a small trackball - similar to that used on many BlackBerry handsets - at the bottom.

It is far from the first time that a company has sold an unlocked handset - indeed, it is standard practice in most countries for manufacturers to offer customers the option of buying a device without going through a mobile network. The practice largely appeals to high-end customers who are comfortable with technology and are happy to spend time negotiating deals with their operator of choice.