Sky Sports says the Spaniard's current deal ends on June 30, and there is willingness on both sides to reach an agreement.
It's likely that talks between both parties will continue into tomorrow.
Benitez, who oversaw a 13th placed finish this season, wants the tools to see Newcastle compete for Europe and lift a trophy. Two weeks ago the former Real Madrid boss admitted that things had progressed and he was hopeful of reaching an agreement.
Newcastle's managing director Lee Charnley has been tasked by owner Mike Ashley to lead the negotiations with Benitez.