The Government may sell off large parts of the vast Crown Estate as part of a privatisation programme of state-held assets that do not have public interest implications.

Policy advisers to the Treasury have drawn up plans to sell the freeholds to some of the Estate's higher-profile London properties, including extensive retail and office holdings on Regent Street and in Kensington, and residential property in Regent's Park, including the Nash-designed building that houses the London Business School.

The advisers have been encouraged to take a "pragmatic" look at the Crown Estate's assets, and suggest areas of the property portfolio that would be most attractive to private companies.

Flotation of a parcel of the assets is a possibility, if it would realise the best price for the Government. The Estate's London-based holdings were valued at pounds 1.5bn in the latest annual report from the Crown Estate, published last week.

Realising money from Crown Estate assets and the extensive property holdings of the Ministry of Defence is seen as one of the Treasury's few options to plug the projected gap in the Government's finances in two or three years.

The Regent Street portfolio would be of particular interest to property groups, as it includes some of the best retail sites in the West End. It would probably be worth significantly more than its listed value if auctioned, according to West End property experts.

Treasury sources said that any sale of Crown Estate properties would be very complicated, due to its "arcane" ownership structure.

"The view taken by the Government is that all state assets are up for review, and that those which would not damage the public interest by being held in the private sector should be transferred there," said one Whitehall source. "But the ownership issue may take time to work out, since it would require an Act of Parliament and most probably the Sovereign's consent."

Originally the Crown Estate was the directly owned property of the monarch, with some possessions dating back to the 16th Century and earlier. In 1760, George III gave up income rights to the portfolio, excluding the royal palaces, in return for the payment of the Civil List.

The portfolio also includes Windsor Great Park, 84,000 hectares of agricultural land and the seabed around the UK to a distance of 12 miles.

While the Treasury now receives the rental income from the Crown Estate, its ownership is unclear. According to the Estate's annual report, it is "part of the hereditary possessions of the Sovereign 'in right of the Crown'."

Any moves to secure ownership by the Treasury would require an Act of Parliament to supersede the Crown Estate Act of 1961. The only property that cannot be sold is Windsor Great Park.

Keith Boyfield, author of a recent European Policy Forum paper on the future of privatisation, said the Crown Estate assets would be very attractive to a Government looking for cash. "The beauty of the Crown Estate is that you can sell it off in parts, and get the best price for each rather than having to privatise it en masse. There is also the view that it might be run more efficiently were it in private hands."

Last week, the Crown Estate Commissioners reported that the value of the portfolio had increased by 13 per cent to pounds 2.49bn, generating pounds 102.9m of income for Treasury.

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