Dudley Muslim Association has offered Dudley Council £325,000 to drop court action blocking plans to build the mosque off Hall Street.
If the proposal from the DMA is accepted the group would retain ownership of the site and the council would end its bid to invoke its buy back clause.
Opposition councillors have condemned the proposed deal for losing prime land. Dudley Council has spent £213,000 in legal costs through the courts.
UKIP and Conservative councillors say spending that money on a legal action only to settle a deal at this stage is wrong.
Dudley Council leader councillor Pete Lowe said they want the best possible deal for taxpayers.
It is believed the value of the site, calculated by the court, is around £150,000.
The proposal will go to scrutiny committees for consideration at a later date.
"This has been a costly exercise for everyone," said Councillor Lowe.
"We have been approached by the Dudley Muslim Association who are keen to avoid any further costly legal disputes for both sides.
"We are carefully considering that offer in the interests of everyone concerned.
"As far as the council is concerned this is about the ownership of the land and getting the best deal for the council taxpayers of this borough."
More than 80,000 people signed petitions against plans for the mosque, which would replace Dudley Central Mosque in Castle Hill.
The controversy has sparked five far right protests in five years, including the recent march by 200 protestors last weekend and previously by the English Defence League.
Councillor Lowe has ruled out staging a local referendum against the plans.
Opposition Conservative group leader, Councillor Patrick Harley, hit back saying: "This is a shabby deal coming in behind closed doors through the cabinet."
UKIP group leader Councillor Brothwood added: "After years of pursuing this matter through the legal process, and winning at great cost it is alarming that a cabinet report has been produced to potentially allow the Mosque to be built without it going to full council."
Amjid Raza, spokesperson for Dudley Muslim Association, refused to divulge specifics of the deal, but added: "At this time the DMA is awaiting a response from Dudley MBC which the DMA understands will follow within the next few weeks."
Dudley Council's cabinet will discuss the proposal next Thursday.