Nokia has confirmed it will pay $8.1 billion (£3.9 billion) for Navteq, the US navigation software group, marking the Finnish handset giant's biggest step to date into providing services for mobile phones.

Nokia will pay $78 in cash for each Navteq share after weeks of discussions and will finance the deal through cash and debt.

Navteq makes software that is used for in-car navigation computers and also makes other applications used in mobile phone handsets, for example, Nokia's 6110 Navigator phone includes Navteq maps.

While the deal has been approved by the boards at both companies, it has yet to be put to a shareholder vote.

One potential problem is Nokia has an agreement with Navteq's rival, Tele Atlas, in China where it providers mapping information to the Finnish company.

China is a key market for Nokia and chief executive, Olli-Pekka Kallasvuo, has forecast that around 4 billion handsets will be sold by 2011 mainly due to demand from both China and India.

Under Mr Kallasvuo, Nokia is attempting to claw in more of its revenues from services as consumer appetite appears to be growing for mobile extras.

Nokia, like other handset makers and telecom service providers, have been attempting to build up the services they sell to users to diversify the company's revenue streams.

Nokia still generates nearly half of its revenue from selling mobile handsets. In its most recent results, sales of Nokia phones totalled €5.9 billion (£4.1 billion) in the second quarter, equal to 47 per cent of its overall €12.5 billion in revenues.

Multi-media contributed €2.6 billion, or 21 per cent, to total sales.

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