Renault plans to propose to Nissan Motor the companies merge under a new holding company, a media report said, citing "people familiar with the proposal".
Nissan shareholders and Renault shareholders would each receive a roughly 50% stake in the new company, Marketwatch reported, adding Nissan had yet to hear details of the proposal.
"It's clear that the alliance is not functioning properly," said one of Marketwatch's sources.
The sources reportedly stressed the proposal was a first step in a negotiation process that had yet to begin.
"This is not a hostile takeover," one sources said.
A source "close to Renault" said the proposal was only one option under discussion.
"There are negotiations saying either we need to change the capital structure, or have better management integration, or ensure better complimentary on projects," the sources said. "We can't stay as we are."
In proposing the holding company structure now, Renault was moving faster than it originally planned, Marketwatch sources said. The accelerated timeline was a result of Renault's concerns about Nissan's deteriorating business results. Earlier this week, the automaker issued its second profit warning of the year, lowering its operating profit projection by roughly 30%.
Marketwatch noted that, while Nissan is the larger company, its 15% stake in Renault was overshadowed by Renault's 43.4% stake in Nissan and the imbalance had been a common complaint of the Japanese automaker's executives.
Marketwatch's sources said Renault's new chairman Jean-Dominique Senard thinks the proposed holding company would allow the companies to move past disputes over the shareholding imbalance and allow them to focus on Nissan's business recovery.
But Nissan thinks Renault is taking advantage of its present weakness to try to force a merger, one source said.