New Formula One team Mercedes Grand Prix are set to offer a driver's contract to retired former world champion Michael Schumacher, the daily Bild reported.

Mercedes's team boss Ross Brawn, who masterminded all of Schumacher's seven world titles with Benetton and Ferrari, is ready to offer the German an annual salary of 7 million euros ($A11.25 million), the newspaper reported.

German car manufacturer Mercedes took over control of Brawn GP this autumn but British world champion Jenson Button is joining the McLaren team, leading to speculation that Schumacher is set to link up with the new team.

"As long as the composition of our driving duo has not been given there will be rumours," a Mercedes spokesman told German sports agency SID.

Mercedes has signed German Nick Heidfeld but have not yet revealed their choice of second driver.

Schumacher retired in 2006 and is currently employed as an advisor to the Ferrari team.

He almost returned to competition last year in place of Brazilian Felipe Massa, who suffered a serious car accident with Ferrari, but his return was cancelled because of a painful neck.

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