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The launch, reported in The Observer, seems to suggest that the move by Associated is an attempt to hit back at Desmond's plan to launch his freesheet London evening paper The Evening Mail, which is targeting Associated's Evening Standard.

If it goes ahead, the tabloid would be the third market the two would be competing in. They are already involved in a bitter mid-market struggle with their respective Daily Mail and Daily Express titles.

The Daily Star has gone from strength to strength recording a January ABC of 835,343, up 38% on January 2002. A rival could hit the paper hard.

According to The Observer, Associated journalists have already mocked up a number of "Star"-type dummies.

The response by Associated mirrors the one it made in the 1987 when Robert Maxwell launched the London Daily News against the Evening Standard. Associated saw off the challenge that time by resurrecting the Evening News, which was sold at a knock-down 5p in a successful effort to bleed Maxwell dry.

The London Daily News is thought to have cost Maxwell £50m before he closed it. Associated will no doubt be hoping to inflict similar pain on Desmond.

Industry sources quoted by The Observer suggest the initial plan is to launch the as-yet-unnamed tabloid title against the Sunday version of the Daily Star.

This could inflict a lot of damage on the market and will likely hit Trinity Mirror's hard-hit Sunday titles The People and The Sunday Mirror as well.

It is reported that Associated is looking at a number of options as it weighs its response to Desmond. These are said to include making the Evening Standard free, which seems unlikely considering the £160,000 it generates in sales; another option is said to include turning its morning freesheet the Metro into a 24-hour paper so that it competes head-on with the Evening Mail.

Express Newspapers recently named the former tabloid journalist and television executive Nick Ferrari as editor of the Evening Mail.

The battle between Desmond and Associated proprietor Lord Rothermere is turning increasing vitriolic. Desmond last week called the Daily Mail proprietor "arrogant", and said that he would not be beaten by his rival in the same way Maxwell was.

"I am told how Vere Rothermere, the late owner of the Daily Mail and Evening Standard, dealt with Robert Maxwell by forcing him to spend millions to cock up the London Daily News," Desmond said.

"Well I have a message for Vere's son Jonathan, I am not Robert Maxwell and I have plans for dealing with the likes of you and your associates," he said.

Speaking to the Jewish educational organisation ORT, Desmond also used the occasion to remind guests of Rothermere's links to Hitler. He said: "Vere Rothermere is also the man whose father said Hitler was right in dealing with the Jewish problem in Germany and how those same plans should be replicated in Britain."

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