Apple is believed to be secretly developing a 'smart watch' with a touchscreen.

Chinese online sites have reported the computer giant is working with chipmaker Intel on a wrist-worn gadget that has a 1.5inch screen and uses Bluetooth to communicate with other gadgets, which could include an iPhone.

The 'iWatch' will go on sale next year, the report claims.

Several manufacturers, such as iWatchz, already make watch-like cases for Apple's small iPod shuffle - although in the latest version the firm removed the screen, possibly making way for a new smart watch

Chinese site Tech.163 claims Intel has developed a Smart Watch that Apple is interested in.

The in question has a 1.5 OLED display with indium tin oxide, or ITO coated glass, and uses Bluetooth to communicate with a user's iPhone.

It is believed the iWatch will run a version of iOS, the same software as the iPhone and iPad, allowing apps to be easily downloaded.

Releasing a watch could also help it compete with Google, who claim they will release 'Google Glass', a headset with a screen, next year.

The rumours come after an independent attempt to create a smart watch, called Pebble, became a huge success online.

Its inventors used Kickstarter to try and raise $10,000 so they could develop it - but instead raised $10 million, and hope to begin production next year.