LONDON: Britain's loss-making Guardian Media Group could close its weekly newspaper The Observer in a drastic cost-cutting drive, the Sunday Times reported here citing sources at the rival paper.

A spokesman for the newspaper group declined to comment on the story when contacted by AFP.

Members of the Scott Trust, a charitable foundation that owns GMG, had discussed the plan in early July, according to The Sunday Times.

Members were shown trial copies of an Observer-branded magazine that could replace the Sunday paper and would be published instead on Thursdays, the paper reported.

GMG management agreed to put the scheme on hold while an alternative was worked out to slim down The Observer and keep it as a Sunday publication, said the report.

"At the moment, I would say it is 50:50 whether we are headed for the magazine, or for job losses and cost-cuts but keeping the paper," the report quoted a senior source as saying.

GMG, which also publishes The Guardian, last week posted an annual pre-tax loss of 89.8 million pounds (106 million euros, 150 million dollars) amid a fierce recession and sliding newspaper sales.