A hotly contested �2.9bn British aircraft carrier contract could be split between Britain's BAE Systems and France's Thales, according to a report.

Such a move would allow the government to sidestep a choice between the two bidders amid fears of further job losses at the UK defence giant.

The 'Third Way' plan is one of several options being weighed up by the government, according to unnamed Whitehall sources quoted by the Financial Times.

Ministers are due to debate the issue when the Cabinet meets later on Thursday.

Biggest

BAE announced last week it was cutting more than 1,000 shipbuilding jobs as part of a sweeping consolidation of its maritime operations.

The reality is that we have an excellent working relationship with the Ministry of Defence BAE Systems

The company has said 700 jobs may go at Barrow-in-Furness, 265 in its shipyards on the Clyde, 50 at Waterlooville and up to 30 jobs at Farnborough.

It has been vying with Thales for the contract to build the Royal Navy's next generation of aircraft carriers.

The two 950ft long, 60,000 tonne aircraft carriers will be the biggest British warships ever built.

'Compromise'

The ships will replace the Royal Navy's three existing carriers, Illustrious, Invincible and Ark Royal.

The MoD is due to announce the winning bid next year.

Thales has said that if it won the contract, the benefits would spread across the whole of the UK's shipbuilding industry, and that work would not go abroad.

BAE has also said that if it wins the work about 10,000 jobs will be sustained.

The compromise solution reported to be on the table would allow both companies to share the profits and risks generated by the contract.

One company would be appointed prime contractor, with the other as supplier, the FT reports.

Alternatively, the government could create a wider alliance between the two companies, outlining specific roles for each.

Meanwhile, defence secretary Geoff Hoon has attempted to play down talk of a rift with BAE management.

'Excellent' relationship

The defence secretary sparked controversy last week by suggesting the defence contractor was no longer British, since the majority of its shares were now owned by foreign investors.

Speaking in parliament on Wednesday, Mr Hoon said: "The Ministry of Defence (MoD) has an excellent relationship with BAE Systems... one that we rely on for a great deal of our defence equipment and I anticipate we will go on relying on for many years to come."

A BAE spokesman also attempted to build bridges with the government, ahead of crucial Cabinet discussions.

"The reality is that we have an excellent working relationship with the Ministry of Defence," he said.