Britain's financial regulator has blocked Lloyds Banking Group from quitting a government scheme to insure it against credit-related losses, the Times newspaper reported on its website on Thursday.

The Times said the Financial Services Authority had told Lloyds it can only leave the so-called asset protection scheme if it raised a significant sum of fresh capital.

The sum required is regarded by the FSA, the Treasury and the Bank of England as unfeasible, the paper said.

Lloyds and the FSA both declined to comment.

Lloyds said in March it planned to put 260 billion pounds ($430.4 billion) in toxic debt-backed assets into the scheme, handing 15.6 billion pounds in shares to the government in return, but final details of the programme have not been agreed.

Industry sources said last month that Lloyds was mulling raising fresh capital to reduce its reliance on the scheme, encouraged by an improved outlook for bad debts.

 ($1=.6041 Pound)

(Reporting by Myles Neligan; editing by Simon Jessop)