By Kasper Jade

Published: 04:30 PM EST (01:30 PM PST)

Apple Computer has begun production of a new version of its iPod digital music player that will be capable of playing videos, AppleInsider has learned.

Reliable sources believe the iPod could be introduced as early as next week, possibly around the time Apple releases results from its fourth fiscal quarter of 2005.

Although details are scarce, sources who claim to have seen the new iPod describe it as being similar to Apple's 60GB iPod photo player, but several millimeters thinner.

The device reportedly sports a smaller click-wheel akin to that of the iPod nano's, making way for a larger, higher-resolution color display that extends further down the face of the device.

The release of the iPod video is expected to be accompanied by a "major update" to Apple's iTunes music store that will include a significant number of music videos and other short video content.

Apple, which had been updating the "Music Video" segment of its iTunes download service on a regular basis, stopped posting new music video content last month, leading to speculation that a major content update was brewing.

Sources have also recently reported sightings of a new Apple wireless device, which is similar to Apple's AirPort Express wireless base station, but also includes a video out option. However, it's unclear if the long-rumored device will coincide with the introduction of a video capable iPod.

Apple recently introduced an ultra-thin version of its iPod called the iPod nano. According to well-placed sources, the company has modeled to sell 3 million of the players each month during the holiday shopping season.

Update: The aforementioned AirPort Express-like product may be an add-on module for the video iPod that will let users play videos on an external display. It's unclear when such a device would debut.