The agreement is expected to be announced by June 30, with details of the deal to be laid out to local legislators in a special meeting next Tuesday.
The government source, who asked not to be named, said the meeting's agenda would include the Disneyland deal and that a media report on the imminent announcement "was largely accurate".
The Hong Kong Economic Times on Thursday reported that the deal was expected to be worth HK$7 billion ($903.3 million) of which HK$4 billion would be used for expansion.
But a Disney spokeswoman in the United States told Reuters that discussions were ongoing and that there was "no" deal yet.
The size of Hong Kong Disneyland, the smallest of Disney's magic kingdoms, is expected to almost double, with construction to begin within a year, pending approval from the city's legislative council in July, the newspaper reported.
The Hong Kong government, which owns 57 percent of the underperforming resort, desperately needs the expansion to boost flagging attendance, with a much larger rival Disneyland expected to be built in Shanghai in 2014 that could draw much visitor traffic from the burgeoning mainland China market.
"At this stage, we have to support the expansion, otherwise it will be very difficult to compete with Shanghai in five to six years time," said legislator Fred Li of the Democratic Party, who said his party backed the expansion as long as Disney boosted its financial transparency in future on attendance figures.
Hong Kong's Financial Secretary John Tsang travelled to Los Angeles in May, where he met senior Disney executives. The trip is seen to have paved the way for the breakthrough after Disney earlier said it would stall any expansion amid the credit crunch.
The Walt Disney Compaly earlier indicated it would likely invest more capital in Hong Kong Disneyland and allow the Hong Kong government to convert its loans to equity to maintain its majority share of the theme park, a source involved in their talks told Reuters earlier.