Following nearly a year of internal debate within the LSE's bureaucracy, Gavin Casey, chief executive, will announce the move within the next few weeks as part of a package of initiatives to modernise the Exchange in the wake of last month's decision to demutualise.
Other measures to overhaul the Exchange's practices in response to the growing competitive threat from rival markets are also in the pipeline. The new market is expected to allow genuine start-up companies with no profits record to list, provided they meet stiff disclosure standards.
It is also likely to allow companies to sell less than the minimum 25 per cent required by the LSE's main board, and to come back and raise further capital through equity sales without the two-year lock-ins which the LSE currently requires.
The Exchange hopes to kick -start the new market by persuading some of the information technology and Internet stocks quoted in London to list on the new technology exchange.
The decision to launch a market tailored to the needs of technology companies follows pressure from the big City investment banks and private equity groups who have been warning for some time that London risks missing the boat over Internet stocks because of the lack of a suitable growth market on which to list.
The Government has also been taking a close interest in the matter because of its desire for the City to do more to fund a viable technology sector in the UK.
There is also a large pool of growth companies from countries like India and Israel who have tended to look to Nasdaq as their natural home but who could be persuaded to come to London if conditions were right.
Although London succeeded in keeping Freeserve, Dixons' Internet service provider which opted for a joint London and Nasdaq listing, other potentially interesting UK hi-tech companies have found it easier to raise money from US investors via Nasdaq, or like Dr Solomon, the anti-virus software firm, have opted for European alternatives like Easdaq which have more of a technology cachet.
Germany's Neuer Markt has seen some 60 new issues so far this year, compared with just a handful in the UK.
Earlier this week Trintech, an Irish e-commerce payments systems company, announced plans to list on Nasdaq and the Neuer Markt in September.
Bankers have cited Razorfish, the web design consultancy and China.com, the Chinese Internet portal, as examples of companies that have listed on Nasdaq which could have found a ready investor market in the UK.
The strong appetite for Freeserve, particularly among retail investors, has raised hopes in the City that other UK Internet start-ups like LastMinute.Com may list here.
However, many fear that the delay in overcoming hostility from the traditionalists within the Exchange may mean that it is too late. Disillusionment with the sector is appearing in some sections of the investment community following the steep fall in Internet stock prices in the US and Germany recently.
Nasdaq now boasts 5,000 companies with an aggregate capitalisation of some $3 trillion.
"It is already so far ahead, that I cannot see how London can ever hope to catch up," one investment banker said.
Outlook, page 17