The project would reportedly target up to 20,000 extremists known to MI5, while Britons returning from former Islamic State strongholds in Syria would also be eligible.
The nationwide programme is due to start next year, the Mail on Sunday reported.
Whitehall said the scheme was part of the government’s commitment to “respond to the evolving threat in the most effective way we can”.
“When you look at the profile of many of the people who have been involved in terrorist attacks in the UK, or travelled overseas, they do not come from deprived backgrounds.
“If someone is inclined to be an extremist, you are not going to bribe them into not being a terrorist.”
Terrorism expert Professor Anthony Glees told the Mail: “You can’t bribe people not to be terrorists.”
ISIS fighters returning from Syria would be eligible under the scheme
The proposals bear a similarity to Denmark’s Aarhus model, a de-radicalisation programme that offers young people at risk of being radicalised a way back into society.
This week, the parents of Jack Letts, a 21-year-old Muslim covert known as “Jihadi Jack”, pleaded for his to be return to Britain after he was captured by Kurdish forces in Raqqa and charged with being a member of ISIS.
John Letts and Sally Lane said their son, who has a history of mental illness, was initially treated well, but has suffered in recent months.
In letters sent home to his parents the prisoner denies being a Daesh member.
He said in encrypted messages to The Times: “I no longer know who I am.”
A Home Office spokeswoman said: “The Government is committed to doing everything possible to protect our communities from the threat of terrorism.
“To respond to this threat, it is vital that we use all the means at our collective disposal to divert people away from terrorist-related activity and we are exploring the best ways of doing this with our partners.
“We are also reviewing our counter terrorism strategy to make sure we respond to the evolving threat in the most effective way we can, both now and in the future.”