In what would represent a significant victory for Deputy Prime Minister Nick Clegg, the Cabinet was said to be ready to approve a plan to end the use of electronic tags and home curfews.
The Sunday Times claimed that terror suspects would be allowed to travel freely within Britain and be allowed to use mobile phones and computers.
A review of counter-terrorism legislation was due to report before Christmas but has been delayed until early 2011 because of ongoing negotiations between ministers.
Mr Clegg's Liberal Democrats fought the general election on a manifesto commitment of abolishing control orders.
Introduced under the former Labour government, they have been strongly criticised by civil liberties campaigners but police and the security services have repeatedly stressed the need to be able to contain suspects they are not able to charge.
The review, also looking at the controversial 28 day pre-charge detention period for terror suspects, was announced by Home Secretary Theresa May in July.
It is being overseen by former director of public prosecutions and Lib Dem peer Lord Macdonald of River Glaven.
Nine people are currently subject to control orders, each with a 16-hour home curfew.