Harrah's Entertainment, the huge US casino firm that owns Caesars Palace in Las Vegas and the £25m Alea casino in Glasgow, is stalking Gala Coral Group, the betting and gaming operator, with the intention of merging its London Clubs International unit with Gala Casinos.

City leisure industry analysts said a merger of LCI and Gala would create a business with 40 British casinos, just one fewer than Stanley and eight more than Rank's Grosvenor Casinos division.

The possibility that Las Vegas-based Harrah's may buy Gala comes three months after the US hotel and casino company made a similar approach to Rank over an offer to swap its LCI business for a stake of about 28% in Rank.

The proposal is said to have been rebuffed by Ian Burke, Rank's chief executive.

Speculation swirled around the City last night that Harrah's, through LCI, had held exploratory talks with Gala, which is controlled by Candover, Cinven and Permira, the private equity firms. LCI and Gala refused to comment on any potential tie-up although a source close to Gala claimed that the company was approached on a regular basis about possible deals, most of which came to nothing.

Analysts said it was unclear whether the discussions with Gala involved a similar assets-for-equity swap, or an outright sale of LCI.

Harrah's acquired LCI in 2006 for about £300m as it sought to push into the British gaming market. However, its ambitions have been held in check by the government's u-turn on deregulation of the industry, last year's big rise in gaming duty and the smoking ban, which was first introduced in Scotland and then later throughout the UK.

The US group, which opened the lavish Alea Glasgow casino on the banks of the Clyde this week, was recently taken private by Apollo Management and TPG in a $27.8bn deal, and analysts believe the private equity firms may have decided to rein back the company's faltering European expansion plans, particularly as the credit crunch has hampered efforts by its bankers to syndicate the debt financing.

Harrah's has been pursuing several potential supercasino projects in Europe, including developments in Spain, Slovenia and Hungary. However, progress has been slow and there are question marks over its new owners' desire to finance projects that could take years to complete.

LCI has 10 casinos in the UK, five of them in London. Its clubs in the capital include the Rendezvous, 50 St James and the newly-opened Casino at the Empire, in Leicester Square. As well as the Alea in Glasgow, which is the city's biggest gaming house, the company recently opened a casino in Nottingham and has another planned for Leeds.

Harrah's has invested heavily in LCI since it bought the business, although the downturn in the fortunes of the UK casino industry means it could struggle to recoup its investment in the event of a sale.

Analysts pointed out that LCI's clubs are much smaller than the resort casinos that Harrah's operates elsewhere. The difficult trading environment has sent shares in Rank crashing in recent months, prompting several potential suitors to take stakes.

Gala operates four casinos in Glasgow and one each in Dundee and Aberdeen. It also runs a string of betting shops in Scotland and County bingo halls, which it acquired in 2006. The group went on to acquire the Leo Casino in Liverpool from Dolby Management, increasing the number of casinos in the estate to 31.

The Scottish market is important for the UK gaming industry, with about one million people visiting casinos a year while millions place bets on football and other sports.

Elsewhere in the gaming sector, Genting, the Malaysian gambling company that owns Stanley Casinos, announced it had increased its stake in Rank Group, the embattled bingo and casino operator, from 10% to 11.03%, sparking fresh bid speculation.

Shares in Rank rose smartly on the London Stock Exchange, closing 5p, or 5.2%, at 100.75p.

Genting has built up its stake since last November as Rank - which also owns the Mecca bingo business - tumbled on warnings of falling revenues and profits after the smoking ban was introduced in England last summer.

Genting is now Rank's second-largest shareholder behind Hermes, the BT pension fund manager. There were also reports of a possible approach from private equity firm Duke Street Capital in December.