The Dudley Muslim Association has offered Dudley Council £325,000 to drop court action in a dispute about the site where the mosque is to be built.
If accepted, the association would retain ownership of the land on Hall Street, and the council would not invoke its buy-back clause.
The council has so far incurred £213,000 in legal costs.
The land at the centre of the dispute was bought by the association 10 years ago, with the aim of replacing its current building on Castle Hill, which it said it had outgrown.
Proposals include a community and training centre, sports facilities and a two-storey car park, but the mosque itself and its three prayer halls have been the focus of opposition.
Branded at times a "mega mosque", the plans have attracted EDL supporters from across the country, although community leaders have in turn accused them of "scaremongering".
At its meeting on 25 June, the council's cabinet will refer the settlement offer to its scrutiny board for consideration.
Pete Lowe, leader of the council, said both the authority and the association were keen to avoid further costly legal disputes.
"We are carefully considering that offer in the interests of everyone concerned," he said.
An out of court settlement has been offered by a Muslim group to end a long-running dispute over a new mosque.