Milly Dowler’s parents are understood to be ready to accept the mammoth sum from Rupert Murdoch’s newspaper business, with a sizable portion earmarked for a charity.
Sources close to the deal, which will include legal expenses, say it could be tied up as soon as this week.
News International hope the landmark payment will help to draw a line under the scandal that has claimed several top executives as well as the iconic News of the World title.
A company spokesman said: “News International confirms it is in advanced negotiations with the Dowler family regarding their compensation settlement.
“No final agreement has yet been reached, but we hope to conclude the discussions as quickly as possible.”
The settlement will eclipse compensation payments made to other phone hacking victims, with Sienna Miller accepting £100,000. Several other cases are still being processed, including that of comedian Steve Coogan.