The government is in advanced talks with the country’s largest steel producer, Tata Steel, over a £500m package to secure its long-term future in the UK, according to reports.

Funding would be pumped into the Port Talbot steelworks in south Wales alongside £700m from the firm’s Indian parent company, Tata Group, Sky News said.

Under the deal, Tata Steel would also be required to commit to building electric arc furnaces to reduce carbon emissions. The production process, which is less labour-intensive than current blast furnaces, could result in the loss of thousands of jobs.

Whitehall officials have been in talks with Tata and British Steel for months about state support to help fund the transition to the more environmentally friendly production method.

The companies were initially offered £300m each to help fund the switch from coal, with the caveat that they would need to protect thousands of jobs for a decade.

Though agreements have yet to be reached, sources told Sky News there were hopes of a Tata deal being finalised as early as this month.

It is said to have indicated that as many as 3,000 of Tata’s UK-based staff may lose their jobs in the long-term as a result of decarbonisation. But “a number” of the roles could be cut through workers taking early retirement, Sky News reported.

The timing and scope of redundancies would be negotiated between Tata and trade unions representing workers, though it is understood no decisions have yet been confirmed.

In July last year, Tata Group’s chair, Natarajan Chandrasekaran, said a transition to a greener steel plant was “only possible with financial help from the government”.

He added: “Without this, we will have to look at closure of sites.”

The group made a £1.5bn demand for government subsidies to help it move to greener production methods.

An insider told Sky News that the firm, which employs around 8,000 people in the UK, had tried to persuade the government to increase the value of the proposed package in recent weeks.

Tata Steel UK reported its first annual profit since 2009 in the last financial year.

Rishi Sunak is due to visit India for the G20 summit in New Delhi next week. In July, the government committed subsidies worth up to £500m to Tata Group’s £4bn pledge to build an electric car battery gigafactory in the UK.

It is thought the factory, expected to be situated in Somerset, would bring 4,000 new jobs to the area.

Tata Group was contacted for comment. The Department for Business and Trade said it did not comment on ongoing negotiations.