"Demarcation [of the homeland's boundaries] has been agreed," Rodolfo Garcia, the chief government negotiator, told reporters after two days of talks with MILF officials in the Malaysian capital, Kuala Lumpur ended.
No MILF officials were available to confirm or deny the report.
The government and MILF have been in talks for a decade about a self-governed territory for Muslims in the largely Catholic country - in hopes of ending a brutal 40-year-old conflict.
Disagreements over the size and wealth of the proposed territory had delayed talks for over a year and were a major stumbling block to an eventual permanent peace deal.
"It's definitely very good news," Jesus Dureza, a presidential adviser, said.
Bloody conflict
He added that the two sides hoped to sign a formal agreement early next year before moving onto what sort of government the homeland will have.
The two sides have previously signed two agreements on security and rehabilitation in conflict-affected areas.
Muslims in the south of the Philippines have been fighting for their own territory for decades.
The conflict has killed more than 120,000 people and displaced at least 2 million since the late 1960s.