US Secretary of State John Kerry announced on Friday that Israeli and Palestinian negotiators had agreed to meet to prepare a resumption of direct peace talks, stalled since 2010.
"The prisoner releases will start when talks commence," the Israeli official told AFP on condition of anonymity. "We're talking about releasing them in stages."
There were "some 80 prisoners" set to be released, all of them "pre-Oslo," the official added, referring to Palestinians imprisoned before the 1993 Oslo peace accords.
Israeli radio said Netanyahu would present the issue to his cabinet "in the next few days" ahead of the first meeting between Israeli and Palestinian negotiators scheduled for early next week.
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The official could not confirm the report.
The last round of direct peace talks between Israel and the Palestinians broke down in 2010 over the issue of Israeli settlements in the West Bank and east Jerusalem.
Israeli officials have hailed it as a "success" as it did not entail the Palestinian "preconditions" of a freeze on settlement construction or the pre-1967 borders as a basis for negotiations.
But Palestinian president Mahmud Abbas has repeatedly stressed his demands for a freeze on settlement building on occupied land and release of prisoners held by Israel must be met before the talks can resume.