The possibility of an additional 63 jets being added to an expected order for 126 was raised during a visit by India's Foreign Minister Salman Khurshid to Paris last week, they said.
"There is an option for procurement of an additional 63 aircrafts subsequently for which a separate contract would need to be signed," a source said.
"Presently the contract under negotiation is for 126 aircraft but we are talking about the follow-up."
India's contemplation of a much bigger than anticipated extension of its airpower will inevitably cause concern in neighbouring Pakistan given the permanently simmering tensions between the two countries.
The Indian press has estimated the value of the deal for 126 Rafales at $12 billion (nine billion euros).
A 50 percent increase in the number of planes ordered would take it to around $18 billion, in a huge boost for the struggling French defence industry, although much of the economic benefit will be shared with India.
Under the deal on the table, the first 18 Rafales will be built in France but the next 108 will be assembled in India by Hindustan Aeronautics Ltd in the southern city of Bangalore.
"The first aircraft will be delivered three years after signature of the contract," the source added.
An industry expert said the time lag reflected India's request for two-seater jets rather than the one-seater model that Dassault currently produces.
India has insisted that the deal involves significant technology transfer and that Indian suppliers secure work equivalent to around half of the value of the contract.
"The negociations for off-sets are progressing well," the source added.
The conclusion of the deal has been repeatedly delayed, with India having initially set a target of the end of last year, which slipped to March 31, 2013, the end of the current fiscal year.
French defence sources said last week that was unlikely to be met but voiced confidence it would finally be done, a stance echoed by Khurshid on his visit to Paris.
"We know good French wine takes time to mature and so do good contracts," Khurshid said after a meeting with French Foreign Minister Laurent Fabius.
"The contract details are being worked out. A decision has already been taken, just wait a little for the cork to pop and you'll have some good wine to taste."
Dassault and the French government are hoping that India's decision will have a positive influence on other potential buyers of the Rafale, who include Brazil, which is in the market for 36 planes, Canada, Malaysia and the United Arab Emirates.
The Rafale was used in a combat situation for the first time during the French-led NATO campaign which deposed Libyan dictator Moamer Kadhafi in 2011 and they have been active in Mali since the weekend.
by Rene Slama and Patrick Rahir 2013 AFP
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