Mr Kennedy quit after he admitted being treated for alcoholism

A party source told the News of the World Mr Kennedy was "deadly serious" about challenging Sir Menzies Campbell.

Mr Kennedy, who quit as leader in January after admitting to a drink problem, is said to have been meeting key aides to discuss a campaign.

He said it was "normal" for him to meet "close" political colleagues regularly.

Biography awaited

According to the source quoted in Sunday's newspaper, a leadership bid could come over the next few months if Sir Menzies does not perform well at the Liberal Democrat conference in September.

It is simply fanciful to read anything else into such a normal ongoing state of affairs Charles Kennedy

But it is more likely to take place after the next general election, the source added.

Mr Kennedy's key advisers are said to have been devising a strategy to counter a potentially damaging biography of Mr Kennedy due out later this summer.

But in response to the reports, the Liberal Democrats released a statement from Mr Kennedy which said: "As everyone knows, long-standing friends and political colleagues remain close to me.

"We meet frequently and it is simply fanciful to read anything else into such a normal ongoing state of affairs."

Lord Newby, who was Mr Kennedy's chief of staff when he was Liberal Democrat leader, also dismissed the reports, saying the story was "ridiculous".

'Shape-up' call

Sir Menzies, 65, has faced criticism of his performance as leader, particularly at Prime Minister's Question Time, since being elected as leader in March.

On Friday, he was told to "shape up" by a leading party member.

Liberal Democrat Welsh Assembly member Peter Black said Sir Menzies had made little impact with the public.

Two weeks ago, 53% of 1,000 people quizzed by ICM for BBC Two's Newsnight said Mr Kennedy would be the best leader of the party, compared with 26% for Sir Menzies.

Sir Menzies responded by saying: "If I didn't think I had the energy, the values and the judgement to be the leader of the Liberal Democrats, I most certainly wouldn't have offered myself for the job."