The West Australian Liberal Party has signed a deal with One Nation to preference the Pauline Hanson party above the Nationals in the upper house country regions.

In return, the Liberals expect One Nation to preference them above Labor in all lower house seats the party is contesting at the March 11 election.

The Sunday Times said Liberal sources said the deal was designed to stem the bleeding in lower house seats, while the Nationals say it could cost them one or two upper house seats.

A Liberal source told the paper the party had learnt a lesson from the 2001 election, when the party lost government after putting One Nation last on its ballot papers.

The Nationals, however, are reportedly incensed by the deal which could lead to One Nation holding the balance of power in the upper house.

Polls show Premier Colin Barnett may struggle to win a third term.

– AAP