Mr Sharon reportedly made the decision to leave the party he helped to found in 1973 after lengthy talks with aides.

Earlier, the moderate Labour party under new leader Amir Peretz voted to leave Mr Sharon's coalition.

The BBC's James Reynolds says there has been no word from Mr Sharon, but it is significant there has been no denial.

The 77-year-old prime minister is expected to make an announcement on Monday, Israeli media reports.

"Ariel Sharon's decision is dramatic, unequivocal, to leave the Likud," one source was quoted by army radio as saying.

Mr Sharon may also ask President Moshe Katsav to dissolve parliament and hold elections as early as possible, according to reports.

He is understood to have agreed with Mr Peretz earlier in the week to bring forward elections from November 2006 to March.

Labour's decision on Sunday to pull out of the coalition has paved the way towards early elections.

Realignment of politics

The radio reported officials as saying Mr Sharon had already begun contacting political allies about forming a new party.

It would be a "centrist party, from every perspective: political, economic and social," Likud officials were quoted by the Israeli Haaretz newspaper as saying.

If confirmed, this is a political realignment of Israeli politics that has been expected for the last two to three years, says our correspondent.

Many hardliners in the right-wing Likud have opposed Mr Sharon's moves to disengage from Gaza and parts of the West Bank, which was carried out earlier this year.

But, while Mr Sharon has lost support in his own party, his policies have won favour with many ordinary Israelis who neither want to negotiate with Palestinians nor rule over them.

Appealing for Israelis to vote for the person rather than the party is a gamble on Mr Sharon's part, says our correspondent.

But Israeli opinion polls currently show Mr Sharon is more popular among the electorate than Likud.