iPhone Game Center due next week

Steve Jobs has claimed iPod Touch is "the number one portable games player in the world", outlining Apple's growing ambitions in the games space with new hardware, an iOS update, an Unreal Engine 3 demo and Game Center reveal during a press conference.

Speaking on stage in San Francisco – streamed live online and broadcast at a separate Apple event in central London which Eurogamer attended – Jobs announced that "the biggest change in the iPod line ever" and the new operating system update would be released next week.

The new iPod Touch, noticeably slimmer than the current model, adds iPhone 4's retina display and gyroscope, plus a front-mounted camera and HD video capture. The device will be available in 8Gb, 32Gb and 64Gb versions, priced at £189, £249 and £329 respectively.

Game Center – a new feature launching with iOS 4.1 – is Apple's answer to Xbox Live and PlayStation Network. Jobs said it was "all about multiplayer games", and walked the audience through a demo of its social features. These include leaderboards, matchmaking and achievements.

Taking a swipe at Apple's gaming rivals, Jobs boasted that 1.5 billion "games and entertainment" titles had been sold via App Store to date - claiming iPod Touch "outsells Nintendo and Sony handhelds combined".

A TV ad for the new model Touch confirmed the company's focus, with the first two-thirds of it focused entirely on gaming.

Epic President Mike Capps was then invited on stage to demo Project Sword – an impressive-looking Unreal Engine 3-powered RPG with a visual style reminiscent of Lionhead's Fable. Jobs confirmed the title for a "holiday" release on iPod, iPhone and iPad.

A demo of the tech, Epic Citadel, was released by Epic last night for iPhone and iPad as a free download.

Jobs, whose session wrapped with a surprise three-song acoustic performance from Coldplay's Chris Martin and featured a video message from Lady Gaga, also teased iOS 4.2, bringing Game Center, multitasking and other iOS 4.1 features to the iPad this November.

After the session, Eurogamer went hands-on with the new iPod Touch, with iOS 4.1 and Game Center installed, but the demo units did not allow connection to the latter's servers. In the absence of a fully-functioning version of Apple's "social gaming network", reps focused on showing off iPod Touch's gyro-functionality in Gameloft's Halo-esque Nova,

An Apple spokesperson said the company was not prepared to add anything on Game Center beyond what was in the conference.

Elsewhere, Jobs announced updates to the iPod Shuffle and Nano lines, plus a new version of the company's Apple TV platform.