It was officially announced in February that Nokia and Microsoft would closely collaborate on developing Nokia smartphones based on Microsoft software.

According to Nokia Chief Executive Stephen Elop, work has now begun on the first Nokia smartphones powered by Microsoft’s Windows Phone software.

Elop gave no indication on when we’re likely to see the first phones from the deal hit the production line.

But the Nokia chief did address speculation that Microsoft might try to buy Nokia.

"I'm not aware of a strategic interest that Microsoft would have in the rest of the business," Elop told Reuters. "To the extent that a partnership has been formed around what they're really interested in, then what would an acquisition bring other than a good year of anti-trust investigation, huge turmoil, delays?

"We're right now, today, having people work on the first Windows Phone devices from Nokia. That work is already under way. If this was an acquisition scenario, that wouldn't be possible," Elop said.

It's also being rumoured that the Nokia handsets will get exclusive Windows Phone features in 2011.

The first Nokia Windows Phone 7 concept images arose shortly after the announcement.