The proposed funding, estimated at between £100 million and £200 million, would help the British engineering group develop and test a demonstrator version of its next-generation UltraFan 30 engine, the newspaper reported, citing people familiar with the discussions.
Reuters said it could not immediately independently verify the report, while Rolls-Royce did not respond to a request for comment outside regular business hours.
The potential agreement comes as Rolls-Royce seeks to accelerate its return to the narrowbody aircraft market, a significantly larger segment than the widebody market on which the company has concentrated its efforts in recent years.
The company had initially hoped to secure a government commitment for the programme during the first half of the year. However, the latest reported developments suggest that negotiations over financial support may be approaching a decisive stage.
In July, Rolls-Royce Chief Executive Tufan Erginbilgic highlighted the potential economic benefits of the proposed engine programme, saying that government backing, combined with the engine securing a position on a narrowbody aircraft platform, could create 40,000 jobs in Britain.
Erginbilgic also confirmed that the company had held discussions with other governments, including those of Germany and the United States, about potential support for the programme, underscoring the international competition to attract investment in advanced aerospace technology.
Rolls-Royce has been absent from the narrowbody engine market for approximately 15 years, despite the segment's considerable size and commercial importance. Its current aircraft-engine business is primarily focused on widebody aircraft, which are typically used for long-haul international routes.
The development of the UltraFan family represents the company's effort to re-establish a presence in the short- and medium-haul aircraft segment, where demand for more efficient next-generation engines offers a significant commercial opportunity.
Securing government support could help Rolls-Royce advance the UltraFan 30 through the demonstrator and testing stages, although the programme's broader commercial prospects would also depend on the engine being selected for a future narrowbody aircraft.
A successful return to the market could strengthen the company's position in the global aerospace industry while supporting high-skilled employment, engineering investment and Britain's wider industrial ambitions. However, the reported subsidy agreement and its potential impact remain subject to confirmation.