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Supplies of unlocked iPhones in Singapore's famous Sim Lim Square electronics shopping centre have dried up following threats of legal action from Apple.

According to retailers, Apple theatened in an e-mail to go after them for illegally 'unlocking' parallel imported iPhones. The phones are unlocked by hacking into their software so that local SIM cards can be used.

Shopkeepers said they had received letters from Apple threatening to sue for USD 1,000 for every unlocked iPhone they had sold. The iPhone is not officially available in Singapore, but unlocked handsets have been on sale for some time in local electronics market, as they have in other countries around Asia.

However, calls to several shops in Sim Lim Square confirmed that unlocked iPhones have become scarce. "We used to sell it, but not anymore," said a sales manager at Royal Plus Pacific, an electronics shop in Sim Lim Square. The shop stopped selling iPhones because they ran out of stock, he said, adding they hadn't received a threatening e-mail from Apple.

Apple is scheduled to release the iPhone in Asia in 2008.

Apple is also going after Dutch retailer Telekaden offering unlocked iPhones. Apple is reportedly demanding that the company stops selling unlocked iPhones, pay compensation to Apple for each phone it has already sold, and agree to never again sell Apple products without its express agreement.

"We do not think we have done anything wrong. We do not need consent from Nokia in order to be able to sell Nokia phones," said Telekaden's sales director Klaus Engelbreth. "And furthermore I'd have preferred that Apple had given us a ring and said they'd discuss the situation instead of rushing in this way with a policeman's badge and stick drawn."

The iPhone has been hailed as the future of mobile phones, winning Time magazine’s coveted Invention of the year award. It is operated using a touch screen and as well as having all the functions of a normal mobile phone, it incorporates an iPod and the capacity to browse the internet.

Phone networks fought hard to win the right to sell the iPhone, with O2 entering into a five-year exclusivity deal with Apple. Apple’s exclusivity deals have already suffered challenges in two European countries.

Orange, the provider that won the French exclusivity deal, has been forced to sell unlocked handsets in order to comply with French consumer law. The firm sold 30,000 iPhones in the first five days of sales in France, but despite the network selling the unlocked phone for 749 euro, 350 euro more than the two-year contract option, 20 per cent of purchasers opted for the unlocked version.

T-Mobile, who won the exclusivity rights in Germany, were forced to sell the iPhone unlocked after rival Vodafone obtained a court order. But recently the company managed to reverse the decision in a higher court.