Credit Agricole's assets amount to 33 billion zlotys (6.62 billion pounds), including assets of group's leasing firm, which means it is nine times smaller than Poland's biggest lender PKO BP.

"The Polish unit of Credit Agricole is up for sale," a senior banking source said. Another senior source confirmed the information, without going into details.

Given its relative lack of clout in a fragmented Polish banking industry, Credit Agricole is seen as facing a choice between selling up or making an acquisition to strengthen its hand. It appears to be testing the waters on both options.

Last month Reuters reported that Credit Agricole was among investors interested in buying its smaller rival Societe Generale's Polish unit Eurobank, which also struggles to compete with big players.

The country's banking market is highly competitive as low interest rates and regulatory pressure have squeezed lenders' margins and smaller players are unable to deliver satisfactory returns for shareholders.

The sale of Credit Agricole would underpin a broader trend of consolidation in Polish banking, which has accelerated in recent years with the ruling eurosceptic Law and Justice (PiS) party encouraging domestic ownership.

A Credit Agricole spokesman in Paris declined to comment.

Neither the potential sale of Credit Agricole, nor its merger with Eurobank would change the Polish banking landscape too much.

Eurobank, whose assets amount to 14 billion zlotys, is too small to compete with bigger predators, and so is Credit Agricole on its own. A potential union between the two could be seen as a step towards further consolidation.

The Polish state last year bought back Poland's second largest bank Pekao SA from UniCredit. Santander then decided to buy the local assets of Deutsche Bank.

(Reporting by Marcin Goclowski and Pawel Sobczak; additional reporting in PARIS by Inti Landauro; Editing by Keith Weir)

By Marcin Goclowski and Pawel Sobczak