The Lite's future has been under review since the closure of its former rival, News International's thelondonpaper in September.
However, Associated has now given notice it may close the paper after starting a formal consultation with 36 London Lite employees.
Steve Auckland, managing director, Associated Newspapers free division, said: "The latest development in the London afternoon free newspaper space dictates that we look again at the future of London Lite.
"Despite reaching a large audience with an excellent editorial format, we are concerned about the commercial viability in this highly competitive area".
The move comes two weeks after the Evening Standard switched to a free distribution model and ramped up its circulation to 600,000 copies compared to the Lite's 400,000.
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