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Talks have progressed in recent weeks, but there's no agreement imminent, sources said.
Varejao, 32, could become an unrestricted free agent in July 2015. Nevertheless, he and Cavaliers officials have a mutual desire to reach an agreement in the near future and continue a 10-year partnership.
Cavaliers star LeBron James has a strong bond with Varejao, with whom he played six seasons before James left Cleveland in 2010 to sign with the Miami Heat.
Cleveland coach David Blatt chose Varejao to start over Tristan Thompson to begin the season, and Varejao's playoff experience promises to be an important part of the Cavs' pursuit of a championship.
Varejao is considered one of the NBA's most aggressive rebounders and defenders, elements that'll be vital in competing against the physicality of the Chicago Bulls in the Eastern Conference this season.
After fighting injuries in recent seasons, Varejao played 65 games for Cleveland a season ago, averaging 8.4 points and 9.7 rebounds in 27 minutes a game. He will make $9.8 million in the final year of his deal.
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