Charles Allen is battling against falling revenues

He is currently negotiating the final terms for his departure which ITV wants to announce next week, BBC business editor Robert Peston said.

It is understood that the ITV board would like him to stay until his successor is found.

Rising competition from digital TV has left ITV battling low viewing figures and falling advertising revenues.

In June, the commercial outfit said it expected revenues at ITV1 to slip 4.6% to �750m in the first half of 2006.

Advertising woes

"ITV has been unable to stem a decline in viewing figures which reached a record low of 16.8% last month, while its advertising revenue has gone south too," the BBC business editor said.

He added that constraints on advertising pricing under a complex contract rights renewal scheme, negotiated with regulators by Mr Allen, had also left Mr Allen under pressure.

This "strategic blunder" had made it even more difficult for ITV to make money as it limits the amount of money the firm can demand from advertisers.

"ITV now needs to go back to regulators to ask for the deal to be changed, but Mr Allen may not be the best person to renegotiate - that's why ITV's board thinks it needs a new chief," the BBC business editor added.

Lucrative contract

However, even though Mr Allen will be quitting the group, under his lucrative contract he will still be able to pick up a substantial pension from the firm when he turns 50 in January.

Shares in the group closed 4.5 pence, or 4.64%, higher at 101.5p on speculation that Mr Allen might quit.

Sky's Dawn Airey, Stephen Carter - former head of media watchdog Ofcom - and Channel Four chief executive Andy Duncan are among those touted as the leading candidates to take over from Mr Allen.

"Mr Duncan is the favourite to succeed - if he wants the job," Mr Peston added.

Bid rumours

Speculation that a private equity group could soon table a takeover offer for the UK's biggest commercial broadcaster also gave its stocks a boost.

Back in June, reports suggested private equity group Kohlberg Kravis Roberts could be a prospective suitor.

ITV has long been the subject of takeover speculation, largely because of the falling advertising revenues on its main channel, ITV1, which fell by �50m in 2005.

It is fighting to keep its audience share and advertising spoils, as viewers switch from analogue to digital using services such as Freeview and other platforms.

The firm has recently been looking at new ways to generate more cash - a move which saw it snap up the website Friends Reunited for �120m last year.