The BBC's Rory Cellan-Jones: "The Post Office wants a stake in the National Lottery"

It has chosen to link up with the existing operator despite discussing the possibility of joint bids with Richard Branson's Virgin group and pools firm Littlewoods.

The state-owned Post Office said it believed the partnership with Camelot would best promote the interest of good causes, players and the public.

Politicians welcomed the move as a way of drumming up more customers and so possibly securing the future of many struggling rural Post Offices in the UK.

Camelot's Tim Holley wants licence renewed

Camelot chief executive Tim Holley said: "We're delighted that the Post Office has chosen to join Camelot in bidding for the next licence.

"The National Lottery and the Post Office are both widely respected national institutions that impact on everyone."

The Post Office, which has 4,000 on-line terminals, has been the largest seller of tickets since Camelot launched the UK lottery in November 1994.

Camelot has raised more than £7bn for the six good causes so far and has set itself a target of £10bn by 2001, £1bn more than the original target.

Manifesto challenge

As part of the agreement, the Post Office is invited to join the current Camelot board but this is subject to formal regulatory consent from the National Lottery Commission.

The Post Office also confirmed that whether it wins the next licence or not, its network of Post Offices will be available to the eventual winner as National Lottery outlets.

Labour MP Martin O'Neill, chairman of the trade and industry select committee, said of the bid: "What this means for the Post Office is that this is the first example of commercial freedom and it really could consolidate the Post Office Counters network.

"It will enable them to get the kind of underpinning which really is required for the Post Office, and especially the smaller rural post offices."

He was tackled on BBC Radio 4's Today programme about the Labour Party's election manifesto commitment that the Lottery would go to a non-profit operator.

"Well, if one of the main partners is still in public ownership and they are operating to fund and support what is in effect a public service, namely the network of local post offices, if that can serve to underpin that then I think that is quite legitimate," he said.

Opening hours

Camelot would "probably" still make a profit, he conceded.

Richard Branson confirmed last month that he had discussed teaming up with the Post Office to make a bid to run the Lottery on the basis that 100% of the profits would go to the Good Causes.

Some 60% of the UK's adult population still play the Lottery regularly.

Shadow trade and industry secretary Angela Browning also welcomed the news, adding a warning that "existing lottery rules often preclude some of the most rural post offices due to lack of density of population and limited opening hours.