The model is likely to include a faster computer chip and a more advanced camera.
The company is also reported to be testing a version of the iPad with a higher resolution screen.
The release of the iPhone 5 in just a few months could add millions more sales to the technology firm’s range of smartphones. The iPhone is Apple’s top seller.
Upgrade: A new version of the iPhone 4 could be released in September
When the iPhone 4 was launched in June last year, stocks ran out within hours and demand crashed the Apple website.
Technology experts are also adding a cheaper version of the iPhone range which will be aimed at boosting its market share in developing countries.
The new phone could be called the iPhone 4G or 4S, with many similarities to the £500 iPhone 4.
An 8-megapixel camera would be an update on the 5-megapixel camera currently used in the iPhone 4.
Cutting edge: Apple boss Steve Jobs talks about the iCloud which was released earlier this month and is expected to feature on the new iPhone 5
Facelift: The iPad 2 will reportedly be updated with an improved screen
But the speedier processor will allow programs to load quicker and the phone will be able to better compete against the BlackBerry and Samsung handsets that use Google’s Android software.
Experts have said that if Apple introduced a more basic mid-range phone the computer giant's share of the the smartphone market could explode as the number of users grows this year and in 2012.Details were made public in San Francisco by Apple’s chief executive Steve Jobs.
Two industry sources later said that the screen resolution on the updated iPad will be a third higher than that of the iPad 2.
The firm has traditionally been highly secretive about products that are being developed. However, details have tended to leak out in the months before their release.
Sources also said that the new phones will include Apple's recently released iCloud software.
They added the phones will include iCloud software, which lets the company store customers’ purchases on its servers – the cloud – instead home computer hard drives.
THE NEW FEATURES
- High resolution 8-megapixel camera
- A5 processor chip for faster loading time
- Fewer visible buttons on the side of handset
- iCloud software to connect Apple devices
- Second mid-range phone with basic features
- Updated iPad2 with more responsive touch screen
This year, Apple is predicted to account for 18.2 per cent of the global smartphone market, trailing behind Google.
In future, users will then be able to access anything from their own library of music, films, TV programmes and podcasts via any Apple device.
This will do away with the need to synch an iPhone, iPad, or iPod to the home PC via either a cable or a wi-fi link.
Details were made public in San Francisco by Apple’s chief executive Steve Jobs, who was making his second public appearance since he went on sick leave in January.
Mr Jobs, who has been battling a rare form of cancer, last stood on an Apple stage in March to announce the second incarnation of the company’s hugely successful tablet computer, the iPad. ( dailymail.co.uk )
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