Modric and Toni Kroos will be offered contract extensions, says Marca.
Modric, 38, and Kroos, 34, have impressed this season with their deals to expire at the end of next month.
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It was claimed Real wanted Kroos to stay, but would release Modric.
But now the situation has changed and Real Madrid have decided to keep Modric, along with Kroos.
Real Madrid will now offer both players new contracts in the coming days.