The London School of Economics plans to create a business school to cash in on its international reputation and go head-to-head with the London Business School.

Implementation of the proposals will start before director Tony Giddens steps down as director this autumn. The school should be established within five years.

Professor Giddens said: "The LSE is well placed to educate the global businessperson. We have already got accounting and finance and four or five other excellent departments that we could consolidate. Almost a quarter of LSE students do business and management-related courses and most of these courses have massive overdemand."

Unlike the LBS, the LSE business school would cater for undergraduates as well as postgraduates. At the LBS there are 1,500 postgraduates plus a further 5,000 students on executive programmes.

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Both schools cater predominantly for the overseas market. At the LSE, 60 per cent of students come from outside the UK and 41 per cent come from outside the European Union. At the LBS, 60 per cent of students come from outside the UK and 47 per cent from outside the EU.

In the 2001 research assessment exercise, the LSE gained the top 5* grade in two units of assessment that could form the basis of a management school: economics and econometrics; and accounting and finance. It received the top grade in five other units and a grade 5 for business and management studies and four other related units.

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Meanwhile, the LBS entered staff only in the business and management studies unit, and received a 5*.