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A spokesperson for the Department for Communities and Local Government confirmed this week that a decision was due to be announced before parliament broke up for its summer recess next Thursday.

Sources close to the review have revealed that the choice has narrowed down to two options since communities secretary Ruth Kelly took charge of the review from David Miliband.

The first is for the agencies to be retained but modernised. The second is for a merger of EP and the corporation with the housing and regeneration delivery functions within the DCLG.

Kelly has been presented with a report outlining the pros and cons. She has been advised by officials to opt for merger.

The momentum behind the proposed merger initially slackened after the appointment of Kelly, who was not convinced by the case for such a fundamental shake-up.

They must make sure that both parties bed down pretty quickly

Nigel Smith, RICS

But it has picked up speed again this week with the announcement of the revamped structure of the DCLG, which says that more 鈥渄elivery-focused activities鈥� in the housing and regeneration field will be devolved out of the department. The merger has won widespread backing in the housing and regeneration sector.

A sticking point has been whether the new organisation should retain control of housing association regulation. But this issue is expected to be part of a wider review of public service regulation that the government is undertaking.

RICS regeneration panel chair Nigel Smith said the merger was welcome in principle but noted that there was a risk that delivery could be disrupted if it was not handled well.

He said: 鈥淭hey will have to make sure that both parties bed down pretty quickly.鈥�

The government is also due to announce extra housing and planning powers for London mayor Ken Livingstone this week.