The frontrunner in the sale of music group EMI's assets, Len Blavatnik's Warner Music Group, has walked away from their auction, the Financial Times reported on Monday.

Blavatnik, whose Access Industries group bought Warner Music earlier this year, had looked set to win from Citigroup a $1.5 billion (939.3 million pounds) deal for EMI's labels which include Capitol and Virgin.

The newspaper cited people close to the negotiations as saying offers for EMI's recorded music division remained below the price at which the U.S. bank was prepared to sell the asset it seized in February from its previous private equity owner, Terra Firma.

However, the sources cited did not rule out Blavatnik returning to the table, as he did after a similar threat three weeks ago, adding that it may not be clear for two weeks or more whether Citigroup will settle for offers below initial hopes or retain EMI for at least another year.

Citigroup and bidders' representatives were unavailable for immediate comment.

EMI's record labels, home to marquee names including the Beatles and Coldplay, have always been the glamorous end of the business.

Bids for the song catalogues of EMI Music have come in closer to Citi's expectations but the early offers for its record labels had been underwhelming.

Sources cited in the article said Citigroup's negotiations over EMI Music Publishing appeared to have made more progress, with a frontrunning offer of about $2 billion from BMG, the joint venture between Bertelsmann and Kohlberg Kravis Roberts.

A Sony-led challenge for EMI's publishing operation is still working to secure financing from sovereign wealth funds and elsewhere, according to the article.

People close to several bidders, cited by the FT, believe the bank is prepared to keep EMI if it is unhappy with the offers.

(Reporting by Stephen Mangan; Editing by Muralikumar Anantharaman)