The television licence fee will rise by less than inflation, after chancellor Gordon Brown turned down requests by the BBC for a higher increase.
The licence, which currently costs £131.50 per year, will rise to around £150 by 2012. This is about £30 less than the BBC requested.
And the funding deal has led to fears that thousands of jobs could be lost, adding to the recent job cuts made by the BBC.
The licence fee will rise three per cent a year between 2007 and 2010 and by between zero and two per cent for the next two years.
A spokeswoman for the Department for Culture, Media and Sport said: "Work on the licence fee settlement is ongoing. We will make an announcement in the new year."
The deal still has to be approved by the Cabinet but it is unlikely it will be rejected.
The defection of BBC chairman Michael Grade to ITV in November had led to concerns negotiations with the government over funding would be damaged.
In October, director general Mark Thompson suggested the move of some BBC departments from London to Salford would not take place if the broadcaster did not receive a suitable funding settlement.
However, culture secretary Tessa Jowell earlier this week told the House of Commons: "The government will ensure that the structure of the licence fee settlement makes clear that the move to the north-west will happen."
She also said: "The BBC must be an efficient organisation that spends its money well and wisely in the interests of the licence fee payer."
The Conservatives have suggested the deal represents a "big defeat for Tessa Jowell" who had backed BBC claim's for a higher increase.
They want to see BBC finances open to scrutiny by the National Audit Office.
Shadow culture minister Hugo Swire said: "Any final settlement figure must be announced when parliament is sitting and not slip out a few days before Christmas when parliament is in recess and MPs have no opportunity to question ministers."
A BBC spokesman said: "Discussions on the licence fee settlement are continuing and we await a decision and announcement in the new year."