Mordechai Vanunu will be freed in April, but placed under tight surveillance, the Yediot Ahronot reported on Monday.
Israel's security services would bar Vanunu from giving press interviews, publishing a book, travelling overseas or within Israel, and planned to monitor his correspondence, the paper added.
Vanunu would also be required to regularly check in with the police.
The security services claim the tough measures are necessary as Vanunu has declared his intention in numerous letters to reveal new secrets about Israel's nuclear weapons programme upon his release.
Prime Minister Ariel Sharon is due to hold talks with justice ministry officials before giving the official approval to the "restrictive measures" to be placed on Vanunu, Yediot Ahronot said.
Vanunu was jailed in 1986 after he was tried for treason in secret. He had revealed some details about Israel's illicit nuclear weapons programme and the role of its Dimona atomic reactor to the Britain's Sunday Times newspaper.
Israel has refused inspections of
its atomic plant near Dimona
After the details were published, Vanunu was tricked by Israeli agents using a "honey trap" - a female agent who asked him to meet her in Rome - to lure him out of London.
Once in Italy, Vanunu was drugged and kidnapped before being taken to Israel.
Despite protests by human rights bodies and anti-nuclear campaigners, he was sentenced to 18 years in prison and held mostly in solitary confinement.
Spy's widow plea
Meanwhile, the widow of Elie Cohen, an Israeli spy hanged in Syria in 1965, has launched a campaign to have his body returned, television reports said.
Israeli hopes Bashar al-Asad will
allow return of husband's body
Nadia Cohen is seeking to capitalise on this week's exchange of prisoners and the remains of bodies between Israel and the Hizb Allah group, and on recent overtures by Syrian President Bashar al-Asad towards resuming peace talks with Israel, the report said.
Elie Cohen was born in Alexandria, Egypt in 1924 and moved to Israel in 1957.
He was recruited by the Jewish state's intelligence service, Mossad, and tasked with infiltrating the Syrian political elite in the 1960s.
After his cover was broken, he was tried by a military court and condemned to be hanged in public in Damascus. Syria has since refused to return his body to Israel.
"Elie paid the price. We paid the price, a very high price," Nadia Cohen said on television. "The time has now come for the Syrians to make this gesture, which would reestablish confidence."