This emerged as the defence and electronics giant announced a further restructuring of its board involving the appointment of three new non- executive directors.
GEC has decided that its new chairman will be someone with an extensive background in business rather than politics. It was also made clear that Lord Weinstock, GEC's former managing director and now chairman emeritus, would play no part in choosing Lord Prior's successor.
GEC said that Lord Prior would retire as chairman at the end of the current financial year after 13 years in the job. He joined GEC in 1984 after holding several Cabinet posts under Mrs Thatcher, including Secretary of State for Northern Ireland.
The company added that a new chairman and a further restructuring of the board would be announced "in due course".
Lord Prior said: "We are looking at a number of very good external candidates." Asked whether that included Mr Heseltine, he said: "I think that is very unlikely." Mr Heseltine, he added, had never been on a shortlist in the first place.
Lord Prior said that the shortlist did not include any internal candidates either. He also said that the choice of a new chairman would be made by the board and since Lord Weinstock was no longer on the board that excluded him from the process.
Apart from Mr Heseltine, two other names mentioned in connection with the chairmanship are Sir Colin Chandler, chief executive of Vickers, the tanks to Rolls-Royce motor cars group, and Charles Masefield, a former BAe executive who now runs the Government's Defence Export Sales Organisation.
George Simpson, GEC's managing director, has been steadily restructuring the group since his arrival last September, changing the management reporting structure and drafting in senior colleagues from his former employers, BAe and Lucas.
The City hopes he will announce details of his strategic review of the group alongside its annual results next month. There is much speculation about what he will do with GEC's joint ventures in telecoms and power systems, GPT and GEC Alsthom.
But there has also been renewed speculation about a full-blown merger with BAe or a link up between GEC's defence business, Marconi and BAe's military division.
Lord Prior said his decision to retire had been entirely voluntary although it had not been unexpected now that he has reached the age of 70.
"I have done this job for 13 years and I have thoroughly enjoyed it. I have had two excellent people to work with in Lord Weinstock and George Simpson but it is time now to leave it to someone else," he said.
Lord Rees-Mogg, the Times columnist, and Sebastian de Ferranti, the former chairman of Ferranti will stand down as non-executive directors at the annual meeting in September. Sara Morrison, the board member responsible for community relations, is retiring from full-time executive duties but will remain on the board to complete her outstanding commitments. The new non-execs are Nigel Stapleton, chairman of Reed International, Baroness Lydia Dunn, executive director of John Swire and Sons the holding company for Cathay Pacific, and Dr Alan Rudge, deputy chief executive of British Telecom.