The Financial Times reported that Vale had pitched the offer at just under £40 per share or £38.9 billion ($A84 billion) for Xstrata's entire equity.

Sources close to the deal told the newswire that both Xstrata and Glencore were holding out for a price offer equivalent to £45 per share.

"The two sides are nowhere near to an agreement," a person close to Vale was reported as saying, adding that the Brazilian miner was "close to walking away from the whole thing".

The latest news is just another hurdle in the possible tie-up between Xstrata and Vale. Reports last month revealed Vale's largest shareholder, the Brazilian Government, was opposed to the merger, believing it was not in the country's best interest.

However the Government has turned around and recently gave the thumbs up to the merger.

Vale has secured over $A50 billion in financing to fund the cash portion of the bid and is offering the pay the remainder in preference shares.

People close to the situation told the newswire that Glencore and Xstrata's other major shareholders have supported this in principle.

A Vale-Xstrata merger would reportedly create the world's largest mining company, ahead of BHP Billiton which has also launched its own takeover for rival Rio Tinto.