A vice-minister of foreign affairs is tipped to succeed Liao Hui as director of the State Council's Hong Kong and Macau Affairs Office, a position Liao has held since the handover in 1997.
People familiar with the situation said an announcement would be made in the next few weeks about Liao stepping down as the office's director.
Vice-minister of foreign affairs Wang Guangya, also party secretary of the Ministry of Foreign Affairs, has emerged as the favourite to fill Liao's shoes.
The sources said Liao, 68, would quit as deputy head of the Communist Party's leading group on Hong Kong and Macau affairs. But he would remain a member of the party's central committee and vice-chairman of the Chinese People's Political Consultative Conference.
Sources also said the central government considered it was an appropriate time for Liao to retire because issues such as constitutional reform in Hong Kong had been resolved.
Wang, 60, is son-in-law of late marshal and former foreign minister Chen Yi. Liao's late father, Liao Chengzhi, was the leader in charge of Hong Kong affairs between the 1950s and the early 1980s.