Innovate UK, the government's technology strategy board, has allocated a £210,000 prize fund to drive innovation in wearable technology.
The money will be awarded to six winners of an Innovate UK wearables competition, each of which will pick up £35,000.
The companies will need to be based in the UK or European Union, and present products that will appeal to a wide commercial market.
Successful companies will also be expected to trial their proposed products with Innovate UK's industry partners, such as Disney and McLaren, for three months.
Innovate UK will also offer expert advice, support and mentoring to help the successful companies to grow.
The organisation said that this two-pronged approach will accelerate the speed at which small companies can succeed.
"Small businesses that combine the funding they receive from us with additional business support are more likely to grow faster," it said.
Companies looking to secure a slice of the fund will need to pitch wearable technology products that address one of six challenges proposed by Innovate UK and its industry partners.
The challenges cover areas including sport, wellbeing, entertainment, hospitality, health and safety, accessibility and design.
One of the challenges is to develop sensors and ways to track performance via wearable technology for sport, in partnership with F1 competitor McLaren and Loughborough University.
Another requires companies to pitch wearable devices for children, in partnership with Disney, which provides them with a safe environment in which to use connected technology without encountering breaches of privacy or inappropriate content.
A further challenge is to improve health and safety in the construction and infrastructure industry, with the goal of providing safe ways to access information and data in hazardous environments.
Other challenges include finding ways to seamlessly integrate wearable devices with textile electronics, helping to improve cognitive accessibility for people with disabilities, and finding ways to enhance guest experiences in the hospitality industry.
Entrants will have until noon on 10 March to submit their proposals.
TechUK welcomed the commitment by the government to allocate funding into wearable technology development, highlighting how it would bolster the UK's position in the Internet of Things (IoT) industry.
"Innovate UK's investment in wearables is a positive step for the UK IoT industry. With the potential to be worth trillions of pounds to the global economy, it's vital that the government takes a leading role in making IoT a reality," said Rob McNamara, associate director at TechUK, in a statement to V3.
However he went on to add: "It's important to note that IoT isn't just about ‘wearables' and consumer devices: many of the benefits of the IoT will come largely from practical applications across industries such as energy, healthcare, agriculture, transport and buildings."
The government is keen to invest in wearable technology and devices relating to the Internet of Things (IoT).
In December 2014, Innovate UK, along with Tech City UK and Cambridge Wireless, provided seven companies with a share of a £1m fund to support IoT start-ups.
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