The European Commission may force Lloyds Banking Group to sell off all or part of its Halifax branch network as compensation for the billions of pounds of state aid the group has received, the London Times reported.

EU Competition Commissioner Neelie Kroes has yet to make a final decision, but banking sources told the newspaper she plans to impose tough penalties.

What (the commission) are talking about Lloyds giving up sounds a lot like Halifax, one person close to the negotiations with Brussels was quoted as saying.

Some believe the bank may be able to reach a compromise that would allow it to keep the Halifax name but sell a significant number of its 1,000 branches.

Kroes is understood to have rejected Lloyds' attempt to limit the remedial action it must take to selling Cheltenham & Gloucester and making limited disposals in Scotland, the newspaper said.