Democratic and Republican negotiators on Thursday night reached an agreement that would avert a possible partial shutdown of the U.S. federal government, local media reported.

Negotiators were signing off on a 1 trillion-dollar spending bill that funds the government through the current fiscal year which ends Sept. 30, 2012, the report quoted several Democratic sources as saying. Both the House and Senate are expected to vote on the measure Friday.

The current stop-gap measure to fund federal agencies is to expire Friday at midnight. Government will be partially closed if no new funding measure is approved before that deadline.

Negotiators from both parties were reportedly to have reached consensus on the so-called omnibus bill that bundles a number of appropriations bills together. But Democrats later backed away from the deal, a move accused by Republicans as a tactic to gain leverage over payroll tax negotiations, one of the Obama administration's year-end priorities.

Negotiations were continuing on extending the payroll tax cut and unemployment insurance, which are set to expire by the end of this year. Democrats preferred renewing the policies for another year but prepared a backup plan with two-month extension, according to the report.

Extending payroll tax cut and unemployment insurance is core component of Obama's job creation act announced in early September. Both Democrats and Republicans favored extending the tax cut at a time of economic woes, but they differed on how to pay for the measure. Democrats preferred offsetting the cuts by raising taxes on the nation's millionaires, a move strongly opposed by Republicans.

Earlier this week, Republican-controlled House of Representatives approved its payroll tax bill. The White House and Senate Democrats rejected the bill as it did not include the so-called "millionaires tax" they wanted and also was bundled with some unrelated provisions. The Senate has yet to pass its payroll tax bill.

President Barack Obama on Thursday urged lawmakers to pass legislation on extending payroll tax cut and unemployment insurance before they leave for holidays.

"Congress should not and cannot go on vacation before they have made sure that working families aren't seeing their taxes go up by 1,000 dollars and those who are out there looking for work don't see their unemployment insurance expire." Obama said at a White House speech.