We have an issue where the router (2865) drops packets on the LAN resulting in very slow internet.
Ping times are all over the place from a laptop or PC directly connected to the router with nothing else connected.
Strangely if we disconnect the WAN the ping times on the LAN interface goes back to normal.
We swapped in a 2927 and it does exactly the same, wildly varying ping times on LAN until the WAN is disconnected.
Anyone any ideas?

Does the fact that this happens with two different routers suggest that it may be something (unusual?) in your configuration that's at the root of this?

Out of interest, which firmware are you running on the 2927?

Sounds like your WAN and LAN are using the same subnet address!

Try changing the LAN subnet address, or, try changing the address of your WAN/Modem’s address to a different network address.

This may be why your pings are all over the place.

I.e, if your LAN is 192.168.0.1/24, make sure your WAN device is using 192.168.1.0 or 192.168.2.1 or anything other than the same subnet as your LAN.

This is a total guess btw, as the info you have given is slightly limited.

LAN IP and WAN IP are completely different so that is not the issue, we have tried changing internal LAN IP of the router and it makes no difference.

Router WAN is connected to an ISP suppled router in what we assume is bridged mode, we have no access to the ISP router, it is part of a fully managed leased line service.

Do you have any VPN connections running when you're trying this ping test?

You could try a trace route (when the WAN is connected obviously) and see if that highlights the problem. You'll need something more sophisticated to trace a packet across your LAN though.

I have seen pings go crazy when using 'Hardware Acceleration' over 'IPSec' before, and that's not pinging a device at the end of the VPN tunnel either, it's worth checking that setting if you're using VPN.

Have you tried a FULL reset of the router (after making a backup of its config first of course) to see if that gives you stable ping results once the WAN is re-established and working again?

Also, have you tried a non DrayTek router in place of the DrayTek setup, to rule that out, by means of the same problem being observed?