According to Italian newspaper Il Sole/24 Ore talks on a deal over Esselunga's commercial activities are 'at a good stage'.
Esselunga, which generates a turnover of Eu4.4 billion (£2.97 billion), had sales of Eu4.4 billion (£2.97 billion) last year and a net income of Eu107.2 million (£72.4 million), giving it a market share of about 9 per cent of Italian supermarkets.
Analyst Goldman Sachs said that the link with Tesco for the 130-store business was unsurprising because the Italian family that owns Esselunga had been looking to sell the company.
In the last 12 months a Eu4.2 billion (£2.84 billion) bid by Wal-Mart for Esselunga broke down and it was reported that French company Auchan was likely to end up buying the Italian firm.
A Tesco spokeswoman said that linking Tesco to Esselunga was 'not new speculation' and added: 'There have been rumours circulating for some time about Italy.'
She declined to comment any further.