The Edge business weekly newspaper said that officials from Proton and Volkswagen had met several times but have yet to formalise a basic agreement.

It said talks have "not been going well" and the mood of the German automaker appeared "less keen" of late.

"This delay could reveal some doubts," an industry source said.

The government is under intense pressure to announce details of a partnership for loss-making Proton, which has lost its status as Malaysia's biggest-selling carmaker to rival Perodua.

Proton last week announced its third consecutive quarter of losses, blaming sluggish sales and increased competition.

The loss of 281.45 million ringgit (80.54 million dollars) in the third quarter to December compared with a net profit of 86.51 million ringgit a year earlier.

Second finance minister Nor Mohamad Yakcop recently said that the government would make an announcement on Proton's strategic partner this month.

"If this schedule is adhered to strictly, sources say General Motors, the world's largest automaker, could well become the partner of choice for Proton," the Edge said.

The deal with a foreign auto giant is aimed at providing Proton with the expertise to arrest a sharp decline in market share as competition heats up.