Tory leader David Cameron said that discussions have been under way between the parties for the last few months, leading to a decision last week to set up a working group on the creation of the new movement.

Such a group is expected to discuss issues like whether a merger should take place or if the two parties should work together in an alliance, and will report to Mr Cameron and UUP leader Sir Reg Empey in the autumn.

However, the DUP last night stood firm in the face of any potential threat from such a new party, blasting the move as an "act of political desperation" on behalf of their rivals.

In a joint article in this morning's Daily Telegraph, Sir Reg and Mr Cameron say that they want to create conditions to shift the focus of politics in Northern Ireland away from constitutional and sectarian issues and on to the bread-and-butter concerns of ordinary people throughout the UK, like tax, health and education.

Speaking to the News Letter, Sir Reg said that the two parties were considering setting up a working party "to see what scope there would be to explore the possibility of closer cooperation, leading to perhaps a new political and electoral force in Northern Ireland".

He admitted that he had "become increasingly concerned at the prospect of the Fianna Fail/SDLP link-up", or the former party's involvement in the affairs of the Province.

He also said that the Union was under threat from a number of sources – not just those from the Republic but also nationalist groups in Scotland and Wales.

"I believe at the moment that my job as leader of the (UU] party is to maintain and promote the Union and at the moment there is no linkage between Northern Ireland and national politics," said Sir Reg.

"Our job is to counteract what I believe is at the core of this – that there's a sort of belief that has crept in to the thinking classes that nationalism is going to win the day here and that it's only a matter of time.

"We are going to set out to see if we can work together to counteract that (feeling] and let people see that in fact the best future for people is within the United Kingdom."

DUP Junior Minister Jeffrey Donaldson, however, accused Sir Reg's party of "seeking to berth their lifeboat alongside the Conservative liner".

And he claimed that the latter party "needs to recognise that in the UUP they have an electoral liability because they have been losing elections consistently now for a number of years".

The Lagan Valley MP also stressed his own party's interest and commitment to maintaining Northern Ireland's union with Great Britain.

"The DUP is not afraid to stand on its own two feet and act in the best interests of Northern Ireland, as we have consistently done both here and in Parliament," he said.

"That will continue to be our sole guide as we seek to defend Northern Ireland's interests and also to advocate strongly the Union of the United Kingdom."