The broadsheet said Tesco had shown "provisional interest" in buying the bank, which was taken over by the UK government last year after being laid low by the credit crunch.

The government is understood to be looking for a buyer for the bank ahead of an anticipated general election in June next year. Virgin, which tried to take-over the distressed lender at the time of its failure, and a number of private equity bidders are also reported to have expressed an interest.

Tesco recently opened a new headquarter office for its financial services business in Edinburgh. The retailer is currently opening bank branches in a number of its supermarket outlets and is looking at buying in technology to enable it to start selling mortgages and current accounts within the next 18 months.

A straightforward take-over of Northern Rock would offer a battle-hardened platform and instant go-to-market capability.

A Tesco spokesman dismissed the report as "pure speculation".

Tesco linked to early sale of Northern Rock - TimesOnline