Apple unveiled a new iPhone with a four-inch screen, aiming to reach consumers looking for a handset that is more affordable and compact than its flagship models.

The new device - called the iPhone SE - will debut at $399 for US customers without a contract subsidy, in a significant cut from the price of its larger iPhones.

Apple vice president Greg Joswiak said many consumers prefer smaller handsets, which accounted for 30 million units sold in 2015.

"They want the most compact iPhone design," he told an Apple event in Cupertino, California.

"Some people asked us, pleaded with us to keep the four-inch iPhone in our lineup."

The iPhone SE will be aimed at first-time Apple buyers and those who want to upgrade from the iPhone 5S and 5C, which have not been updated in over two years.

The iPhone 6S, the lowest-cost handset in the large-screen family, starts at $649.

Apple will be taking orders Thursday for the new phone in the United States, Britain, Australia, Canada, China, France, Germany, Hong Kong, Japan, New Zealand and Singapore, with more markets to come online in April.

The iPhone is sold around the world, but with a price starting at €575 for the current top model without a contract, it is beyond the reach of many.

Apple believes the mid-size market is worth pursuing, analysts have said, as it looks to counter the global spread of phones running Android, made by Alphabet Inc's Google.

Technology research firm IDC is expecting a small rise in sales of devices running Android this year, to account for almost 83% of smartphones sold worldwide.

It expects iPhone sales to fall slightly, making up 15% of the market.

Apple said in January it expects a decline in iPhone sales overall this quarter compared to the same period a year ago, the first such dip since Apple essentially created the smartphone market nine years ago.

The product drives about two thirds of Apple’s sales and no other gadgets in its line-up are close in popularity.

Wall Street analysts worry the company does not have another blockbuster product to replace the iPhone.