Two of the Britain's best known off-licence chains, Thresher and Victoria Wines, are being lined up for a merger. Drinks giant Allied Domecq, which owns Victoria Wines, said it was in talks with Thresher's owner, Whitbread, about combining the two chains.

Allied Domecq corporate communications manager Mr Michael Crofts said: "Yes, we are in talks with Whitbread and when and if something develops we will make a further announcement."

Both businesses are about the same size and if the merger goes ahead it will create Britain's most powerful off-licence chain, with around 3,000 branches, 15,000 staff and combined sales of more than £1.6 billion.

The proposed link-up is the most dramatic move yet in the battle between off-licences and the supermarkets.

In a recent report on the takehome beer market by Whitbread, supermarkets accounted for eight of the top 10 biggest beer retailers, with Thresher in fourth place and Victoria Wine seventh.

By merging their high street shops, Allied Domecq and Whitbread hope to use their combined buying power to strike better deals with breweries and suppliers and to use their marketing muscle to lure customers away from the supermarket drinks aisles.

But the planned deal could attract the attention of the competition authorities because it could lead to branch closures, where Thresher and Victoria Wine compete head-to-head.

It is expected to attract criticism from independent retailers who fear being squeezed out in any price war between the new chain and the supermarkets.

It is likely to be one of the first major competition issues to face Mr Peter Mandelson, who took over as Secretary of State for Trade and Industry last week and will have to decide whether or not to refer the deal to the Monopolies and Mergers Commission.