The former England coach, who has ruled himself out of coaching Nigeria at next year's finals in France, has agreed in principle to stay with the Socceroos when his contract expires next July.
It is believed that the extended contract would enable Venables, 54, to coach at club level, possibly even in the Premiership where he has been linked with several clubs. But Venables must make himself available for Australian international commitments.
Asked if the proposed agreement would allow Venables to coach in the Premiership, the Soccer Australia chairman, David Hill, said: "The short answer is yes, but with a big qualification, that we were able to structure a deal that ensured his availability when Australia needs him."
Australia want Venables to take their national team into the next millennium despite their heartbreaking defeat by Iran on away goals for the last qualifying place for 1998. "That's the intention. He wants to do it, and we want him to do it," Hill said. "He's really developed an affinity with Australia. The guy clearly is a phenomenal coach. We are paying, by our standards, a lot of money for him, but it's way below what he's worth."
In the Confederations Cup yesterday in Riyadh, Australia held Brazil to a 0-0 draw while the host nation, Saudi Arabia, were thrashed 5-0 by Mexico.
Iran have received a quadruple snub in their search for a high-profile coach to lead them at the World Cup finals. Four man have turned down the job: Carlos Bilardo, who took Argentina to the 1986 title, the former Barcelona coach Johan Cruyff, Bora Milutinovic, recently sacked by Mexico and now on Nigeria's shortlist, and the Portuguese coach, Eduardo Vingada. Iran are now negotiating with the former Bulgarian coach, Dimitar Penev, who took his side to the 1994 semi-finals.