Prime Minister Abdullah Ahmad Badawi suffered a major setback today as the controversial merger between two of Malaysia's largest newspaper groups has been abandoned.

The merger of New Straits Times Press (NSTP) and Utusan Melayu - which was backed by Abdullah - would have created the nation's biggest press group, but it was reportedly stalled due to opposition from sections of the ruling party, Umno.

"After a series of discussions, NSTP and Utusan were not able to reach a scheme of merger that would be beneficial to both parties and its stakeholders," they said in identical statements to the Kuala Lumpur stock exchange, Bursa Malaysia.

"As such, the company wishes to announce that the proposed merger between NSTP and Utusan is now aborted."

Owned by Umno

Umno is the majority owner of Utusan Melayu, whose flagship Malay-language daily, Utusan Malaysia, competes with the NSTP's Berita Harian.

The merger plan, announced last December, was initially backed by influential government ministers who said it would create a financially stronger entity that would be able to share facilities and raise media standards.

Utusan Malaysia has for decades promoted the concerns of the country's majority ethnic Malays, and some Umno members were reportedly opposed to changing its identity.

Activists also criticised the proposal, saying it could see Umno controlling a large slab of the country's media outlets, further concentrating media ownership.

The NSTP, which also publishes the influential English daily, the New Straits Times, is controlled by the country's largest media conglomerate, Media Prima, which is controlled by individuals closely linked to Umno.