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Guardian Media Group (GMG) is in talks to sell The Observer, the world's oldest Sunday newspaper, to Tortoise Media, a start-up founded five years ago by a former BBC and Times executive.
GMG confirmed on Tuesday afternoon an exclusive report by Sky News that it was in negotiations with Tortoise Media about a sale of the title.
Talks between the two sides have been underway for some time, although banking sources cautioned that it was possible that a deal might not be reached.
Tortoise Media is understood to be prepared to commit an investment of £25m in The Observer in the first five years of its ownership.
The potential price that would be paid by Tortoise Media, which was established by James Harding in 2019, and other key details of the prospective transaction were unclear.
In a statement issued after Sky News revealed the discussions, Anna Bateson, GMG's chief executive, said: "This is an exciting strategic opportunity for the Guardian Media Group.
"It provides a chance to build the Observer's future position with a significant investment and allow the Guardian to focus on its growth strategy to be more global, more digital and more reader-funded."
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Katharine Viner, The Guardian's editor-in-chief, said the development had "the potential to be a very positive thing for both the Observer and the Guardian".
"My number one priority is a future in which both titles continue to thrive and deliver high-quality journalism to our readers," she said.
"It is extremely important to me that the Observer, with its excellent journalistic reputation, loyal readership and heritage as the world's oldest Sunday newspaper, is in good hands."
A deal to sell The Observer would reshape Britain's declining Sunday newspaper market, and will raise questions about whether The Guardian plans to extend its six day a week print operation to Sundays.
One source said that GMG had been given approval by The Scott Trust, which oversees The Guardian's stewardship, to explore a deal.
They added that there was a belief among GMG executives that the investment required to provide a robust digital future for The Observer was more likely to be provided by a third party as The Guardian focuses on its own internationally renowned reporting.
Tortoise Media has 120,000 subscribers to its Daily Sensemaker newsletter, while its podcasts attract between 2m and 3m downloads each month.
It has been backed by Thomson Reuters chair David Thomson, Lansdowne Partners and LocalGlobe, a leading venture capital firm, since its launch.
Mr Harding is a former editor of The Times and head of news at the BBC, and set up Tortoise Media in a bid to provide deeper insight into and analysis of significant global stories.
"We think the Observer is one of the greatest names in news," Mr Harding said.
"We believe passionately in its future - both in print and digital.
"We will honour the values and standards set under the Guardian's great stewardship and uphold the Observer's uncompromising commitment to editorial independence, evidence-based reporting and journalistic integrity.
"Like its many, many loyal readers, we admire the strength and heart of the Observer's reporting, we prize its original, unbiddable thinking and we love it for its passions: food, music, film and art.
"George Orwell described the Observer as 'the enemy of nonsense'; we're excited to show readers, old and new, that it still is."
The Observer is thought to employ fewer than 100 full-time and freelance staff on a standalone basis.
It was founded in 1791 by WS Bourne on the simple premise, according to an official history of the title, that "the establishment of a Sunday newspaper would obtain him a rapid fortune".
GMG acquired The Observer in 1993.
The potential deal comes amid a shake-up in the British national newspaper industry, with The Daily Telegraph and its Sunday sister title in the process of being sold.
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