Government sources, cited by The Guardian newspaper, said Prime Minister Keir Starmer and Finance Minister Rachel Reeves considered steel to be of "huge strategic importance" and that "all options are on the table, including nationalisation".
Starmer on Tuesday had said that all options were possible but did not mention nationalisation.
Pressure is mounting over British Steel less than two weeks after it confirmed plans to shut blast furnaces and other operations in England, as it continues talks with the government.
British Steel said US President Donald Trump's tariffs on the sector were partly to blame for a decision which could cost up to 2,700 jobs at its main UK site in Scunthorpe, northern England.
However, it is fierce competition from cheaper Asian steel that has been blamed for heaping pressure on Europe's beleaguered steel industry in recent years.
The Financial Times on Wednesday reported that Reeves "is open to the option of bringing British steel into public ownership," citing people close to recent conversations held between the minister and union bosses.
UK Business and Trade Secretary Jonathan Reynolds met with the CEOs of British Steel and owner Jingye on Wednesday to discuss the future of Scunthorpe.
"Both sides welcomed continued cooperation in talks to find a way forward," the Department for Business and Trade and British Steel said in a joint statement.
"The UK Government thanked Jingye for their respect for the workforce during this process, and work continues at pace to find a resolution."
British Steel, which employs about 3,500 people, has so far failed to reach agreement with the UK government on a financial package that would help it transition to "greener" steel making.
Starmer recently announced that the government was stumping up some GBP 2.5 billion ($3.2 billion) to help support the steel sector in Britain, home also to operations owned by Indian group Tata.
Asked about possibly nationalising British Steel, Culture Minister Lisa Nandy held out hope that a commercial deal could be struck.
She told the BBC that this was "the right option, and we believe that is achievable and within sight".
"I am absolutely confident that we are doing every single thing that we can to secure the future of British Steel," added Nandy.
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