According to a report in the Financial Mail on Sunday, the sell-off is being considered to protect GMG from continuing losses at the title ahead of the expensive relaunch of The Guardian in 2006.
GMG has said it plans a £50m investment in the relaunch of The Guardian, which is expected to see it adopt a mid-size "Berliner" shape, which is used by many European papers including Le Monde in France. Ahead of any sale, GMG is still talking about a tabloid redesign for The Observer as well.
The paper reported that GMG has taken informal soundings with possible interested parties, which are understood to include rival newspaper groups and private equity groups.
A spokesman for the newspaper group said reports of the sale were "wholly without foundation".
The Observer, Britain's oldest newspaper and launched in 1791, has lost millions of pounds since it was acquired by GMG in 1993 for a reported £26m and, unlike The Guardian, does not turn a profit. The Observer contributed heavily to the £6.2m loss GMG's newspaper business made last year.
The losses are nothing new. Even when The Observer was acquired in 1993, it was in trouble, running at a loss of an estimated £9m a year with a circulation that has continued to decline from more almost 590,000 in the early 1990s. In the most recent ABCs published last week, The Observer was down 2% to 453,018 while rival The Independent on Sunday registered a minor increase of 0.06% to 214,323.
The Guardian and Observer newspapers are ultimately owned by the Scott Trust, which was set up to oversee the Guardian newspaper and ensure its ongoing independence.
The latest sell-off talks are not the first to emerge -- there has been talk of a sale before. However, most national newspaper groups would be deterred from making a bid on the grounds of competition issues.
There is also the issue of protecting the paper's liberal credentials. When GMG bought The Observer back in 1993 it seemed like a natural bedfellow for The Guardian because of their shared left-of-centre sensibilities.
Peter Preston, the then Guardian editor, said at the time: "Our over-riding aim is clear: to help to publish an editorially independent and vibrant Observer."
Whether there are other owners out there who would be so committed to such an editorial agenda is unclear.
GMG won a fierce battle for the paper and only took ownership from Tiny Rowland's Lonrho after months of negotiations and fighting off a bid from Newspaper Publishing, then owner of The Independent.
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