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In a statement issue this morning, the newspaper group said its bid with CVC Capital Partners, which owns Debenhams and Kwik-Fit, had been unsuccessful.

If it had been successful there was talk that the Labour government would block the sale on competition grounds. DMGT's bid would also faced regulatory hurdles from the Competition Commission and Ofcom.

In the statement, DMGT said: "CVC Capital Partners have been leading a consortium, including DMGT, which has been having discussions with Lazard relating to the sale of certain assets of Hollinger International. Those discussions have now terminated.

"DMGT has enjoyed a good business relationship with CVC, even though it was unsuccessful on this occasion."

The DMGT's exit from the race to buy the Telegraph Group, which also includes the Sunday Telegraph and The Spectator magazine, follows reports last week that it bid significantly less for the business than rivals the Barclay brothers.

The Barclays, who own The Scotsman Group, are understood to have met the £700m price tag set during the auction run by Lazard's investment bank.

However, the billionaire brothers are not the only bidders left in the race. Private equity firm 3i is also still bidding, but it too is understood to have submitted a lower bid than the Barclay brothers.

A decision on the new owner is expected this week. However, this may be delayed after reports that ousted Telegraph Group chairman Lord Conrad Black is demanding that the board of the group's parent company Hollinger International seek shareholder approval before proceeding with the sale.

He said last night that he wants a shareholder vote to approve any sale proposed by the Hollinger International board. However, he is exempt from making any decisions at Hollinger International following the earlier scandal.

The withdrawal of DMGT follows news yesterday that an investigation has been launched at Hollinger International after it emerged that circulation figures at its Chicago Sun-Times title had been exaggerated for several years.

The overstating of circulation figures, however, was confined to the US and Hollinger said that no such similar evidence had been found at the Daily Telegraph.

If the Barclay brothers do win the race it will draw a line under the long-running story, which first broke last November when payments worth $32.5m (£19.1m) were made to then Hollinger chief executive and chairman Lord Conrad Black of Cross Harbour and other Hollinger executives.

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