The proposal would see Yahoo hand over its search advertising operation to Google in a deal that could yield Yahoo as much as US$1 billion in new revenues, according to reports in The Wall Street Journal.
The publication cited anonymous sources within Yahoo as saying that the outsourcing deal had been granted initial approval and will move forward.
The arrangement would give Yahoo another weapon in its effort to ward off a takeover attempt by Microsoft.
The Redmond giant has been attempting to push Yahoo's board to accept its US$42 billion proposal since February.
Yahoo's board has rejected the offer several times, causing Microsoft to issue an ultimatum threatening to oust the board if it does not agree to the proposal by 26 April.
Since the acquisition offer was first made, analysts have speculated that Yahoo would seek out a deal with former rival Google in attempt to preserve its independence.
The two companies confirmed those suspicions earlier this month when they announced a two-week trial of a search advertising programme.
Yahoo has also been rumoured to be in talks with AOL and News Corporation for other deals which could raise cash to fend off Microsoft.
Google 'close' to bailing out Yahoo
By Shaun Nichols on Apr 21, 2008 7:47AM