Tesco is planning to turn some of its largest urban supermarkets into mini-Tesco villages containing hundreds of homes as it looks for new ways to raise cash to fund a giant turnaround.

As part of a radical strategy devised by chief executive Dave Lewis, Britain’s largest supermarket chain is working on a bold plan to overhaul its vast store estate, which analysts say could raise £1.5bn.

A scheme with property developers to build hundreds of flats on top of its superstores and sprawling store car parks is central to the proposals.

According to Alan Stewart, Tesco’s chief financial officer, the sale of Tesco’s so-called “air rights” could generate around £400m. The plans have added appeal because they could provide a solution to Britain’s housing crisis. A further £1bn-plus is expected to be raised from offloading land and excess space in its stores.