GNM announced earlier this year that it was conducting a strategic review of its operations and it was speculated that one option was to turn the Observer into a weekly magazine – a rumour that was compounded when a story announcing the possible closure of the newspaper ran in the Sunday Times.

Several celebrities and media figures backed a campaign to save the Observer, which was founded in 1971, including Blur singer Damon Albarn, rapper Dizzee Rascal and writer Salman Rushdie.

Despite the continuation of the paper, editorial staff have been warned there will be further integration of the paper with sister title the Guardian.

Carolyn McCall, chief executive of Guardian Media Group (GNM’s parent company), said: "GNM is looking to the future and making sure it’s in good shape to deal not only with recession, but also the profound changes in media that are not going to disappear when advertising markets recover. By taking the right action now, we serve the long-term interests of our journalism."

Alan Rusbridger, editor-in-chief of GNM, added: "Given the present state of recession and digital transition, there isn’t a media group in the world that isn’t reviewing its publishing operations and the nature of its journalism.

"The weekend review has been rigorous and very helpful in understanding the changing needs of readers. A new-look Observer produced by John Mulholland and his team, and new ideas for the Saturday Guardian, were extremely well received.

"As a result of the review, we will be publishing a formidable weekend package – with two papers that complement each other, each retaining a distinctive tone and voice."