The Department for Transport is expected to return fully to the COI fold following a three-year separation.
Government ministers, who are anxious to heal the rift between the two bodies, are "optimistic" the dispute, which saw the DfT establish its own roster in 2002, will be settled.
Intensive talks between the DfT and Alan Bishop, COI's chief executive, are underway in the hope of concluding a deal in the next few months.
A DfT spokesman said existing agency contracts could run until March next year but that it had an option to pull out of them earlier. "We have not made any decisions," he said. COI refused to comment.
The DfT edged toward a full reconciliation by returning to COI for media planning and buying, a process completed last week when it agreed to use COI's media agency, Carat, for its cinema buying.
But the department, which spends up to £20 million a year on ads, has retained its creative roster of Euro RSCG London, Leo Burnett, Rainey Kelly Campbell Roalfe/Y&R and Abbott Mead Vickers BBDO.
Ministers were worried the breakaway undermined COI's ability to win the highest media discounts and their drive for "joined-up government". One source said: "We are optimistic this chapter can be brought to an end."
A settlement may require a face-saving formula acceptable to both sides.
The DfT argues its test of the market forced COI to deliver better prices, but COI insists prices would have been the same if DfT had remained in the fold.
A full return would be a major boost for COI, which has faced a series of inquiries about whether it should retain its pivotal role in government communications. It is facing demands by the Home Office and the Department for Work and Pensions for a more arms-length relationship that would allow their officials more direct contact with agencies.
- Comment, page 44.