The Sunday Express reported that GWR chairman Ralph Bernard has met several times with Capital Radio chief executive David Mansfield about the two groups merging.
Sources quoted by the paper suggest that a deal, although not imminent, could be done within six months.
However, in a statement issued this morning GWR denied it was in talks with Capital.
"In response to press speculation over the weekend with regard to 'formal discussions between GWR and Capital Radio', GWR Group plc states that it is not in discussions with Capital Radio," the statement said.
The radio market, which is seen as ripe for consolidation since the government passed last year's new media legislation, the Communications Act, has the possibilities for a number of tie-ups that could see either Capital or GWR partnered with other players.
Another merger possibility being mooted is the Daily Mail & General Trust, which owns a large stake in GWR, being another possible GWR buyer. Such a move by the company, which also owns the Daily Mail newspaper, might be dependent on whether it proceeds with a £500m bid for the Telegraph Group of newspapers.
Lorna Tilbian, a media analyst at Numis Securities, said: "If DMGT loses out on its battle for the Telegraph it may choose GWR. However, I think the most likely route for GWR is a merger with Capital this year."
A deal between Capital and GWR has the advantage of facing few government hurdles and could create possible savings of around £7m, which includes a merger of their radio sales operations.
Last year the Guardian Media Group was being tipped to bid for Capital. GMG expanded its radio interests last year with the £44.5m acquisition of Jazz FM. Its other radio interests include Real Radio in South Wales, Central Scotland and Yorkshire and Scot FM.
A merger of Capital and GWR would bring together Capital FM, Century and Xfm with GWR's Classic FM, London News Radio and a local network of stations including Mercury FM, Coast FM and Buzz 97.1.
Emap is another possible bidder. Emap, which owns the Kiss FM and Magic radio stations, has also looked at buying Capital. Last week it bought a 27.8% stake in Scottish Radio Holdings for £90.5m.
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