Environmentalists have said the destruction of Mabira, one of the east African country's last remaining patches of natural forest, could have grave ecological consequences, such as the drying up rivers and the removal of a buffer against pollution of Lake Victoria.
Last year, the president, Yoweri Museveni, ordered a study into the possibility of axing nearly a third of Mabira Forest (17,000 acres), which has been a nature reserve since 1932, to expand the sugar estate of the private Mehta Group.
This would be likely to threaten monkeys and nine species found only in Mabira and surrounding forests - the Tit Hylia bird, six butterflies, a moth and the ajua shrub, used to treat malaria.
Nsibambi and Mutagamba were unavailable for comment on Wednesday's report.
"Once it [the proposal] has reached the level of the prime minister writing letters to the environment minister, it is de facto that cabinet has approved it"
Geresom Musamali, state-media political correspondent
Mutagamba's deputy, Jennifer Namuyangu, the state minister for water, said she was unaware of the move.
The Ugandan cabinet can quickly approve a such a proposal and then hand it over to parliament for a vote.
Geresom Musamali, a state-media political correspondent, said: "Once it [the proposal] has reached the level of the prime minister writing letters to the environment minister, it is de facto that cabinet has approved it."
The Mehta Group's regional director, Suresh Sharma, said the company could not yet comment.
Last year, Museveni requested that the head of the National Forest Authority (NFA), Olav Bjella, resign after his refusal to grant a licence for Kenyan palm oil company, Bidco, to remove a rainforest on an island in Lake Victoria.
Baguma Isoke, the new NFA boss, said that he had no authority to block land giveaways, which were up to parliament.