Tony Blair and Chancellor Gordon Brown are reported to have already agreed a proposal for a fountain named after Diana in one of London's royal parks.

Mr Blair told The Mirror newspaper that the Government was working on a memorial to mark the life of ''a very remarkable woman''.

The Diana memorial at Althorp House

A Downing Street spokesman said any plans would be made in consultation with the Royal family, while there would also be talks with the Royal Parks over a site for the memorial. "It is important to get this right,'' he said.

Mr Blair told The Mirror: "It is very important that we honour the memory of someone who not only is very dear to people in this country but also achieved a lot.

"We are working on something that is both permanent and one of which the princess would have approved and been proud."

Talks with family

The BBC's Francesca Kasteliz: "A way to honour a woman known everywhere"

Mr Brown is chairman of the Diana, Princess of Wales Memorial Committee which has already considered proposals for a fountain in Kensington Gardens. The Princess lived at Kensington Palace after her marriage to Prince Charles collapsed.

"Our original proposals put forward a plan for a fountain in Kensington Gardens but we were not able to take those plans forward," Mr Brown told the paper.

"I've since been working to resolve the issues and we will now be consulting the Princess' family about the new plan for a fountain."

Mohammed al-Fayed has created a shrine to Diana and his son Dodi at Harrods

The newspaper says Earl Spencer is backing the proposal, as is Diana's mother, Frances Shand Kydd.

Princes William and Harry would also have to be consulted on the idea before it went ahead.

A spokesman for Buckingham Palace said: "We have already made it clear that there would be no opposition from Buckingham Palace to a permanent memorial to the Princess of Wales, should it reflect first and foremost the wishes of the Princess' family."

Mr Blair's pledge comes after increasing calls for a lasting memorial to the Princess.

More than 2,000 people paying their respects to Diana on the second anniversary of her death in August signed a petition calling for a permanent tribute to her at Kensington Palace.

'Touched lives of millions'

Plans for a memorial garden at the palace, Diana's official home, were abandoned when Kensington residents objected to the proposal.

Instead, the Memorial Committee is refurbishing a playground in Kensington Gardens and will create a memorial walkway along the princess's funeral route, as well as a schools achievement award and so-called "Diana nurses", caring for children at home.

Mr Brown said those initiatives were already part of a lasting memorial to the princess.

He said: "Princess Diana touched the lives of millions. The popular view is that there should be a permanent memorial."

Diana's brother Earl Spencer has had a memorial built in the grounds of her childhood home, Althorp House.

And Mohamed al-Fayed has created a memorial to the princess and his son Dodi, who died in the 1997 Paris car crash with Diana, at the Harrods department store in London.