Harry and Meghan may leave two bedroom cottage at Kensington Palace

With a baby on the way, the Duke and Duchess of Sussex are keen to move up the property ladder from the two-bedroom Nottingham Cottage at Kensington Palace.

Royal insiders had widely expected the Queen's cousin, the Duke of Gloucester, 74, and his Danish-born wife, Birgitte, 72, to move out of their lavish 21-room Apartment 1 to make way for Prince Harry and Meghan, reports The Daily Mail.

But I hear there is a spanner in the works: Birgitte wants to stay put in the apartment, which is right next door to Prince William and Kate's huge home.

"Birgitte doesn't want to leave," one of her friends tells me. "And why should she? She and her husband are still full-time working members of The Firm and they were given their apartment by Her Majesty."

A Kensington Palace spokesman insists it's "not true" that Harry and, in particular, Meghan covet the Gloucesters' spacious home.

Intriguingly, a royal source tells me that Harry and the American former actress may leave the confines of Kensington Palace altogether.

"Harry and Meghan want to move, and need more space, but they don't want to live next door to William and Catherine," says the source.

"They will soon have separate offices and separate lives, so it would make sense for them to live further afield. There is no reason why their London home has to be at Kensington Palace. There are plenty of other options, including using their own money to buy their own place."

The two couples currently share a joint household at Kensington Palace but it was reported last month that they are considering a 'formal division'. The split would create separate courts to reflect their increasingly different responsibilities.

The princes' country homes are 130 miles apart, with William's family at Anmer Hall, on the Sandringham estate in Norfolk, and Harry renting a converted cow shed in Great Tew, Oxfordshire.

"Catherine and Meghan live very different lives," adds the source. "And that is likely to become more marked over time."