The deal would be the latest in a series of disposals aimed at reducing the Spanish group's debt burden below 47 billion euros by the end of the year. It is also in the process of selling its O2 Ireland business to Hutchison Whampoa.

Analysts have said that the shuffling of assets could also be used to free up capital for other deals, such as its proposed takeover of the investment vehicle that controls Telecom Italia and a possible move for the Italian's company's Brazilian operation.

The deal to buy Telefonica Czech Republic will be announced officially this week, the Financial Times said.

PPF is then expected to launch a tender offer for the remaining 31 percent of the unit listed on the Czech stock exchange, potentially adding a further 1 billion euros to the enterprise value of the deal to take it private, the FT said.

Telefonica declined to comment, while PPF was not immediately available for comment.

Both Telefonica and PPF have acknowledged talks over the possibility of the Czech group, led by businessman Petr Kellner, buying the Spanish firm's Czech operations.

(Reporting by Tracy Rucinski; Additional reporting by Jason Hovet in Prague; Editing by Mark Potter and David Goodman)