Video chain Blockbuster has pulled out of its bid to acquire US electrical retail giant Circuit City.

Blockbuster chairman and chief executive Jim Keyes blamed the state of the retail market for the collapse of the deal, online magazine Twice reported.

"Based on market conditions and the completion of our initial due diligence process, we have determined that it is not in the best interest of Blockbuster's shareholders to proceed with an acquisition of Circuit City," he said.

"We continue to believe in the strategic merits of a consumer retail proposition that would bring media content and electronic devices together under one brand."

He said his company would pursue this strategy through its stores as a means of diversifying the business.