Lottery money may be used to commission new plays for theatres under a deal to be put to the Secretary of State for National Heritage, Virginia Bottomley.
Under current legislation lottery money can only go towards capital assets such as new buildings.
But Lord Gowrie, the chairman of the Arts Council, aims to persuade Mrs Bottomley that a new play is a new creation just like a new building and thus a "tangible asset".
The two will be meeting next week, and sources at both the Arts Council and the Department of National Heritage say the pair are determined to claw back some money for the arts after the 3 per cent cut in the grant for the department from the Treasury, and Mrs Bottomley's subsequent pounds 5m cash cut for the Arts Council.
An council spokeswoman said Lord Gowrie had been examining the lottery legislation and had found certain areas "at the edges" where there was scope for flexibility.
Mrs Bottomley said yesterday: "We both want to find a way forward, to find an accommodation."
Using lottery money for commissioning new work - it could apply to operas and symphonies as well as plays - would delight the arts world, but would bring hostility from those who see lottery money as being used for elitist and minority tastes.
Meanwhile theatres, opera houses and other Arts Council clients have had their planning thrown into confusion by an unprecedented move by Lord Gowrie to postpone the allocation of their grants.
In a fierce reaction to the pounds 5m cash cut, Lord Gowrie, himself a former Conservative Cabinet minister, has refused to make the annual grant allocations in December as planned.
Calling the treatment of the arts "damaging and irrational", he said the council would not allocate grants for next April until at least the end of January.
He added: "We share the Secretary of State's commitment to people as well as buildings. We shall be looking for her to work with us to translate this into practice over the next few weeks."
Mrs Bottomley is understood to have been privately upset by the Treasury's parsimony to the arts, which suffered nearly a 3 per cent cut, and yesterday she continued to blur the important distinction between government grant and lottery money, saying: "Lottery money is additional to government spending ... but almost uniquely this department has had an extra funding source."
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