ALGIERS (Reuters) - Al Qaeda has demanded 10 million euros (US$13.54 million) in exchange for a Briton and a Swiss national it captured in the Sahara, backing away from a threat to kill one of the hostages, an Algerian newspaper reported.

The group's north African wing had previously threatened to kill the Briton by May 15 if the British government did not release Abu Qatada, a Jordanian Islamist it is holding in prison.

Al Qaeda's chief in the Sahara desert region, Hamid Essoufi, also known as Abdelhamid Abu Zeid, was behind the ransom demand and was willing to accept 8 million euros as a minimum, daily paper El Khabar cited a security source as saying.

In return, Al Qaeda would first release the Swiss hostage as a sign of goodwill, and would free the Briton weeks later, it said. Britain has asked the group to show that the two hostages are alive and well, El Khabar cited a security source as saying.

It said Britain had sent a Burkina Faso national from Europe to act as an intermediary and obtain guarantees that the hostages were still alive. There was no official confirmation that negotiations were under way.

Mali sent three combat units this month to track down suspected al Qaeda militants in the north of the country, part of a vast desert tract that in the past few years has become a haven for Islamist insurgents.