Seven-times Formula One champion Michael Schumacher has agreed a one-year deal to come out of retirement and drive for Mercedes in 2010, Bild newspaper reported on Tuesday.

The newspaper said the 40-year-old German, who won his titles with Benetton and Ferrari and retired at the end of 2006, signed the deal at the team's offices in Brackley, England, after a month of talks.

Schumacher will earn 7 million euros ($10 million), according to media reports, in what would be an all-German line-up.

Mercedes, who have taken over champions Brawn, have signed Nico Rosberg as their other driver for 2010.

Schumacher turns 41 in January and, if confirmed, will be returning to F1 after aborting plans for a comeback with Ferrari this year as a stand-in for injured Brazilian Felipe Massa due to a neck injury caused by a motorcycle accident.

A move to Mercedes would reunite him with Britain's Ross Brawn, the technical director who guided Schumacher to his record seven titles and 91 race wins and who is now the team principal.

It will also take Schumacher's career full circle, since the German drove for the Mercedes sportscar team before breaking into Formula One with Jordan in 1991.

Since his retirement the German has worked as a consultant for Ferrari, but the Italian team has said that is not a binding agreement.

AGE NO BARRIER

Former champions Damon Hill, Schumacher's rival in the 1990s, and Nigel Mansell have both said that age will be no impediment and that the German could return as a winner.

"It wouldn't surprise me if Michael challenged for another world championship," Britain's 1992 champion Mansell, who won his title aged 39 and competed in Formula One until the age of 41, said at the weekend.

"It doesn't matter what age you are as long as you are professional, committed and focused," added the Briton.

"For me there is no downside to this. He's won enough titles, so what does he have to worry about losing to anyone? It may take a few races to get to grips with his car, but after that it wouldn't surprise me if he was to challenge for his eighth title."

Schumacher's return will allow 2008 champion Lewis Hamilton, who entered the sport only after Schumacher retired, to measure himself against Formula One's most successful driver while also setting up an intriguing Anglo-German battle.

Hamilton and 2009 champion and compatriot Jenson Button will form an all-English pairing at rivals McLaren, who will still be powered by Mercedes engines.

There will also be a battle of the generations, with Schumacher lining up on a starting grid likely to include at least one driver half his age.

Mercedes chief executive Nick Fry said earlier this month that a Schumacher comeback would be good for the sport: "I think that just adds another very interesting element," he said.

"Can a 40 or 41-year-old compete against someone who is 24 years old? In other sports people have proven that they are very capable even at that age."

The sport's oldest champion remains the late Argentine Juan Manuel Fangio, who took his fifth title at the age of 46. The oldest driver to win a grand prix is Italian Luigi Fagioli in 1951 at the age of 53.