Rumors have persisted over the last year and a half that Google would release its own branded cell phone; the company has repeatedly denied the gossip, emphasizing its concentration on Android as a mobile operating system that it licenses to existing cell-phone makers.

Now the NY Times reports that Google employees have received a Google-designed handset to test. An official Google blog entry, posted Saturday, calls the handset a “mobile lab” that company employees are using “to experiment with new mobile features and capabilities.” The company has not commented beyond this post.

The touch-screen smartphone is made by HTC–maker of most commercially available Android handsets–to hardware and software specifications set by Google. Reports claim that the company plans to sell the new phone directly to consumers over the Internet. It apparently works on GSM networks, which would mean AT&T and T-Mobile only in the U.S. That would put Google directly in competition with Apple and its AT&T-only iPhone.

UPDATE: Pictures of the phone have surfaced on various blogs… they match previous descriptions of its looking like the upcoming HTC Passion (rumored to run Android 2.1).