
The Germany captain Ballack, 31, will be asked to stay until 2011 at Stamford Bridge, to where he moved in 2006 on a free transfer from Bayern Munich. His original contract runs until 2009 and talks on the new deal are set for after the season.
The Times said that Ballack is "likely to accept" the new offer which will effectively commit him to The Blues until the end of his career.
Ballack had a mediocre first season at Chelsea, scoring just seven goals and pondering leaving last summer after his relationship with then manager Jose Mourinho soured over an ankle injury.
He was sidelined for eight months and only returned before christmas.
Ballack has been a major factor since then under new manager Avram Grant, scoring nine goals as Chelsea reached the Champions League final for the first time and are in a neck-to-neck Premier League title race with Manchester United.