Sega is partnering with mobile-social gaming network PapayaMobile for Fallen Realms, a new free-to-play game exclusive to the the Android market. It’s a nice deal for PapayaMobile to get a larger, strategic partner like Sega as it fends off very well-funded competitors like DeNA’s Mobage network, GREE’s OpenFeint and eventually Facebook.

Fallen Realms is only the second Sega game available on Android and it’s the first time Sega has launched a new game on Android before iOS.

The game is a social, turn-based RPG that uses PapayaMobile’s social features to enable players to form groups and fight monsters as a team and share achievements within the PapayaMobile community.

The release is a win for PapayaMobile, which has been feeling competitive heat in both the Chinese and Western markets from rival social networks like Mobage, OpenFeint and HeyZap as mobile social networks turn to Android due to competition on iOS from Game Center and Apple’s restrictions on cross-promotion, payment providers, and single virtual currencies.

HeyZap has racked up almost 5 million installs on Android and after some major tweaks from ngmoco:) and more aggressive marketing spending, Mobage is beginning to get some traction (although probably not enough for the team to meet its earnouts after being bought by DeNA for up to $403 million). The rival network recently announced it was adding TinyCo to a growing stable of developers and now offers 31 games, almost as many as PapayaMobile currently has. OpenFeint has also been trying to push into China by partnering with Shanghai’s The9 to bring 60 of the network’s games from Western developers into China.

However, neither PapayaMobile or its main rival Mobage are giving up on iOS yet – PapayaMobile recently returned the platform and ngmoco:) announced last month it was aiming to have an iOS version of Mobage running by November or December, albeit without cross-game currency.

According to the joint press release distributed by PapayaMobile and Sega, PapayaMobile’s gaming network now has 38 million users, up from the 35 million users it reported in the middle of November.