Lawrence Graham and Forsyte Saunders Kerman are understood to be in merger talks that would create a top 25 law firm in the UK.
Any deal is likely to be a Lawrence Graham takeover.
Forsyte Saunders, whose partner numbers have dropped from around 30 to 20 in the three years since it was created by merger, is believed to have been searching for a merger partner for some time.
The much more profitable 67-partner Lawrence Graham will be keen to obtain Forsyte Saunder's high-profile property practice which contributes 50 per cent of its income. Clients include BICC, Land Securities and Chartwell Land.
Paul Di Biase, chairman of Forsyte Saunder's management board, said that his firm had been having ongoing discussions with a number of other firms as part of its strategy to add capacity to its booming property department.
However, he conceded that talks with one firm which he refused to identify had "maybe gone beyond the preliminary".
He said the firm wanted to explore other options as well, including bolt-ons, in order to boost other areas of practice and reduce reliance on property.
Di Biase added that his firm had no fixed time-scale for implementation of its strategy and described the situation as "fluid".
Martyn Gowar, senior partner at Lawrence Graham, would only say: "We talk to a number of firms. Forsyte Saunders Kerman is one of them."
Forsyte Saunders was created in December 1994 by the merger of Forsyte Kerman and Saunders Sobell Leigh & Dobin. But since then several partners, especially from Saunders' side, have left. Its Lloyd's insurance practice, headed by Saunders partner Michael Robin, was sold to Hammond Suddards in April 1996.
Its West-End based practice is also very top-heavy with only 15 assistants supporting 21 partners, according to the latest Chambers directory.
Lawrence Graham, based in the Strand, takes more than a third of its revenue from its shipping practice, but it has also gone against the City trend by taking on private client practitioners from other firms.