The BBC understands that if Andy Burnham becomes prime minister then he is expected to replace Rachel Reeves as chancellor and offer her a more junior cabinet position.

A spokesperson for Burnham said no decisions had been made.

It comes as the former Greater Manchester mayor begins to assemble a Downing Street team, assuming he wins the Labour leadership race in which, currently, he is the sole candidate.

Sir Keir Starmer announced he was standing down as prime minister days after Burnham won the Makerfield by-election, allowing him to return to Parliament.

The biggest decision Burnham will make as he begins to sketch out a possible cabinet is who will be his chancellor.

Most Labour MPs assume Reeves will not continue in that role but, as first reported by the Financial Times, external, she is expected to be offered a more junior cabinet position.

A close ally of Burnham told the BBC: "Andy really respects Rachel and I'm confident he'll want her in his top team."

James Purnell, who served as a minister in Gordon Brown's government between 2007 and 2009, would be appointed Burnham's Downing Street chief of staff.

But if the new MP for Makerfield becomes prime minister, how much to spend on defence will be an immediate challenge.

Burnham and his team have been discussing that with John Healey, the former defence secretary, who resigned earlier this month, warning the current planned increase in military funding fell "well short of what is required".

Sir Keir met Burnham for an hour on Tuesday, as the outgoing leader sought to ensure an "orderly" transition of power.

It was the pair's first meeting since Burnham won the by-election.

Burnham is the only candidate so far to have emerged as a contender for the Labour leadership. If he does not face a challenger, he could become prime minister as early as 17 July.

Cabinet minister Darren Jones and former armed forces minister Al Carns were being considered as potential candidates by some Labour MPs who want to avoid installing Burnham in No 10 without a contest.

However, Jones confirmed on Wednesday that he would not be running. He told Sky News: "Andy Burnham is going to be the next prime minister and if there was a contest of Labour Party members, he would win."

Jones, a close ally of Sir Keir, said he had wanted assurances on Burnham's approach to economic policy, which he received after speaking with the new MP for Makerfield.

Former Royal Marines officer Carns told BBC Newsnight he was still considering standing in a potential contest but was waiting to see what policies Burnham was planning to "push forward".

"We need to see that material before I can make a decision to back him," he added.

It is not clear whether either MP would gather enough support to get on the ballot paper.

The party's rulebook says candidates need to be nominated by 81 Labour MPs, as well as either 32 of Labour's 634 local branches, or three organisations affiliated to the party (including two trade unions).