A question mark is hanging over the future of the Oxford Nuffield Orthopaedic Centre.

A key report has warned that the internationally renowned hospital is no longer financially viable as a health trust.

And it is now unlikely to be able to continue as an independent organisation in the face of mounting competition from a new private treatment centre.

The NOC embarked in 2002 on a Private Finance Initiative with Albion Consortium to build a new treatment and diagnostic centre at the site.

The £42m building is due to be finished in February.

The newly formed strategic health authority yesterday strongly denied that the NOC was facing closure.

The report was commissioned by the Thames Valley Strategic Health Authority in the face of growing concerns about the financial future of the region's main specialist orthopaedic hospitals.

According to the report, the NOC is faced with losing large number of patients needing routine knee and hip replacement operations to a private orthopaedic treatment centre, which recently opened in Banbury.

And with the NOC having to concentrate on specialist services, it says the hospital trust will be simply too small to survive, despite its recent big expansion.

The report warns that the hospital looks to have expanded beyond its means. It says: "There has recently been extensive and expensive capital investment.

"The PFI appears to be larger than required and so presents a major long term financial problem in funding the unitary charge, making reductions in capacity a more difficult option.

"We recognise that a minority of the workload is highly specialist but we do not anticipate an overall increase in this work."

The hospital's problems will be greatly compounded by the loss of work to Capio Horton, the new private centre set up in Banbury.

The review concludes: "The NOC is not viable as a separate organisation. It needs to and will shrink so its remaining work is far more specialist.

"It will be far too small to survive on its own and should merge with a larger organisation, probably the Oxford Radcliffe."

Jan Fowler, the NOC's acting chief executive, moved to dismiss fears of closure.

She said: "We are concerned to hear reports about possible closure of the NOC and we want to assure patients that this is not being planned."

Mark Brittany, the chief executive of the new strategic health authority, South Central SHAM, said a study was now underway to establish the "the strategic direction for the NOC" which would be completed in March.