The decision leaves Ross Taylor, head of Bovis parent division Real Estates Solutions, as frontrunner to replace David Higgins as head of the whole Lend Lease group. Higgins resigned in May.
The move also raises the possibility that Lend Lease, listed on the Australian stock exchange, will float in the UK. It may also herald an expansion plan that could include a revival of the failed merger with consultant Atkins.
The decision to retain Bovis, which turns over £650m, follows a week-long Lend Lease board meeting, at which the board is also understood to have decided to sell its US financial services business, Real Estate Investment.
The group had told shareholders at its annual general meeting earlier this month that it was reviewing REI's future. The three options considered included selling Bovis to raise about £600m, selling REI and sticking with the status quo.
Sources close to the board said the decision to retain Bovis puts Taylor in pole position to succeed Higgins, as it was Taylor who devised the approved strategy.
One source said: "As he is chief executive of the major part of the business that will remain, it is logical for him to take over as overall boss."
Taylor was first considered for the chief executive role when Higgins announced he was stepping down in May. But the board is understood to have considered the 40-year-old too young and inexperienced.
Lend Lease is concentrating on what it knows best
Australian City source
However, despite concerns that his appointment six months later would confuse analysts in Australia and make him look like second best, Taylor is understood to have impressed with his management of Bovis. He has created an integrated real estate business, combining property development and management with construction.
The board is due to make a final decision before Christmas. There is reported to be one other candidate – rumoured to be Gordon Eddington, a non-executive director of Lend Lease and former boss of BAA's property development arm BAA Lynton.
One of the new chief executive's first decisions will be whether to move the headquarters of Bovis Lend Lease to Australia, which is favoured by analysts there.
Alternatively, the group could be based in the UK and floated on the stock exchange, perhaps through a reverse takeover of a listed construction company.
The person appointed will also be under pressure to use money from the sale of REI, estimated to be worth several hundred million dollars, to buy a business in Bovis Lend Lease's core area of PFI and long-term facilities contracts.
One takeover candidate would be Atkins, with which Bovis held £350m merger talks in 1998 before P&O sold Bovis to Lend Lease.