Luiz Felipe Scolari has agreed a two-year contract extension to remain as Portugal coach until 2008.
Scolari won the World Cup with Brazil in 2002
The 57-year-old Brazilian was recently touted as a replacement for Sven-Goran Eriksson as manager of England.
But Portuguese football federation chief Gilberto Madail said: "We have agreed in principle but I can't reveal the details at the moment.
"If Scolari extends his contract, it will be for two years, not four, and will run until Euro 2008."
The deal is understood to depend on Portugal's fortunes at the World Cup.
Scolari declined the England job because of intrusion by the English press - the position was later filled by Steve McClaren.