The embattled Metropolitan police commissioner, Sir Ian Blair, has been told that his contract will not be renewed and that he should start planning for retirement, senior police officials have disclosed.

The Met chief, who has survived a series of demands for his resignation, was notified in a private conversation that his plea for a second term had been rejected and the search for his replacement will begin soon. The decision is a grave blow to Blair, who has previously spoken of his desire to stay on until after the 2012 London Olympics.

He had briefed colleagues that he hoped his five-year contract, due to expire in January 2010, would be renewed for at least 2½ years. His post commands a £234,000 annual salary, a chauffeur-driven car and the use of a £1m executive flat in southwest London.

Yesterday the Met’s press bureau denied that Blair had been formally told that his contract would not be renewed. It said that such matters had never been discussed.

However, two senior police officials said that Blair was given the news in a private talk with Len Duvall, chairman of the Metropolitan Police Authority (MPA), before this month’s London elections.

One colleague said: “Sir Ian has been told that his contract will not be renewed. He has been given advance notice so that he can make the relevant financial arrangements.” The commissioner, who is Britain’s most senior police officer, is technically appointed by the Queen. In reality he is given the job by the home secretary after consultation with the chairman of the MPA and the mayor of London.

The commissioner is accountable on a daily basis to the MPA and its chairman and cannot survive in his job if the chairman’s backing is withdrawn.

This weekend Duvall would say only: “This is not a matter for public discussion.”

However, a senior MPA official confirmed that Duvall had told Blair that he was on his way out. “At the time Sir Ian’s contract comes to an end it will be a good time in the development of the Met to appoint someone else,” the official said, adding that the Home Office was aware of the decision.

The official said there was no clear frontrunner to succeed Blair. Speculation has focused on Sir Hugh Orde, head of the Police Service of Northern Ireland, and Sir Paul Scott-Lee, chief constable of West Midlands police, Britain’s second largest force.

Senior officials say that after a string of blunders and rumours of infighting Blair has in effect become a “lame duck” commissioner. It is an open secret at Scotland Yard that he has lost the support of key players in his senior management team. His unpopularity with the rank-and-file is well known.

Senior Home Office officials have long complained that he suffers from “foot in mouth” disease. The situation became so bad that Sir Ronnie Flanagan, chief inspector of constabulary, was forced to telephone him at least twice to order him to keep his mouth shut.

Blair’s biggest problem, however, was the shooting of Jean Charles de Menezes, a 27-year-old Brazilian electrician who was mistaken for a fugitive suicide bomber in July 2005. Senior Met officers say they are dreading the inquest into Menezes’s death, which is to begin in September.

The Met yesterday denied that Blair had been given notice. “The commissioner has never had a meeting or conversation with Len Duvall where his contract has been discussed. Any such matters would be a matter for discussion nearer the time,” a spokesman said.

David Davis, the shadow home secretary, who has repeatedly called for Blair’s resignation, said: “If true, this is a remarkable action by Mr Duvall. Such action is both overdue and should have been taken by the home secretary some time ago to draw a line under the terrible events in London on July 22, 2005.”

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