According to a recent report by Lookout’s App Genome Project, the number of Android Marketplace apps increased by over 125% since August, putting it on pace to outgrow iTunes apps three to one. Apple still commands a sizeable lead in the total number of apps it offers through iTunes versus AM, the gap is narrowing quickly.

“If apps continue to be developed for each platform at this same rate, said Lookout CTO Kevin Mahaffey, “the Android Market will have more apps than the Apple App Store by mid-2012.”

More developers are writing for Apple, however, since the iTunes store offers a greater ratio of paid apps to free apps, but Android developers are writing more apps per capita than iTunes developers. And more apps are accessing sensitive privacy data like user location and contact information. That may be cause for concern, but Lookout expects the number to drop in future reports as developers feel the heat from privacy advocates. In addition, Lookout has found an increase of malware being packaged with third party apps in alternative app stores raising concern that field is becoming more fertile for smartphone virus distribution.