Apple has been long rumored to be working on an Apple Tablet PC - which the company has not confirmed or denied its existence and when it may be released - it now appears that Microsoft is hard at work on an Apple Tablet killer.

ZDNet's Mary-Jo Foley reports that Microsoft plans to create a tablet, which is based in part on the technology behind the company's Surface project and has been developed under code names including Oahu and Alchemy Ventures.

Microsoft is keen on building a smaller version of their gargantuan and multi-touch equipped Microsoft Surface table, the report said.

Foley said the folks at Redmond may very well “wait for Apple to show its Tablet hand before trotting out its revamped tablet.”

Chief Experience Officer J Allard - the person behind the Xbox brand for several years - is said to also be in charge of this project.

Microsoft is not, however, the first to catch on the tablet wave. HP recently released its own tablet device called a DreamScreen, which brings together mobile phone, PC and TV – though it is designed mainly to sit still on the counter, rather than be carried around.

DreamScreen is designed to be used by a whole family or group to control media, collective schedules and leave messages. Services include digital picture frame, radio, music, TV, video, entertainment and information. It costs $249 or $299, depending on screen size, in the US, and will come to Europe next year.

Microsoft Electronics Apple inc. Ipad