Britain's Times newspaper said Woolworths was in discussions with Hilco UK Limited, a firm that buys underperforming retail businesses and turns them around for profit.
The sale price would be a nominal 1 pound ($1.50), according to the report. Hilco declined to comment.
In August, Woolworths rejected a $74m offer for its retail division from Iceland Foods Ltd.
Shares in Woolworths were suspended for about 20 minutes at the start of trading on the London Stock Exchange, pending the announcement about the sale talks.
The stock ended down, plummeting by 38.3 per cent to $0.04. In the last year, the retailer's share price has fallen by more than 80 per cent.
Woolworths "needs to deal with someone if it wants to survive,'' said Sam Hart, a retail analyst at Charles Stanley Stockbrokers.
If Woolworths is able to sell its retail arm, the company would be left with its two smaller units: Entertainment products distributor EUK and BBC program distributor 2 Entertain.
In the last financial year, which ended in April, those two businesses accounted for roughly half of Woolworths total revenue, or about $2bn.
Britain's Woolworths was founded in 1909 as part of the US chain, but the two no longer have any link. The company is also not related to Sydney-based Woolworths Ltd. or South Africa's Woolworths Holdings Ltd.