Iraq's justice ministry says one of two female scientists held in US custody will be released on Thursday.
Mr Hensley's death has not been formally confirmed
It denied any link with the demands of militants who have reportedly killed two Americans and who are threatening to kill Briton Kenneth Bigley.
Militants beheaded the second American, Jack Hensley, on Tuesday, according to a statement on an Islamist website.
The kidnappers have demanded the release of all Iraqi women held in US-run prisons, without naming names.
The US says that it is only holding two women prisoners, and that it has no knowledge of any plan to release them.
The UK government has told the BBC there was no request by anyone at any level in the government for the women to be freed.
"That would be tantamount to dealing with terrorists," a Downing Street spokesman said.
The first US hostage, American engineer Eugene Armstrong, 52, was killed on Monday and 24 hours later the group claimed to have killed a second American, Jack Hensley.
A decapitated body, thought to be that of Mr Hensley, has been found in Baghdad, but it has not been formally identified.
The woman who is to be released is Rihab Rashid Taha, a biological weapons scientist nicknamed Dr Germ, the Iraqi justice ministry said.
RIHAB RASHID TAHA
Nicknamed Dr Germ
Worked on Saddam Hussein's biological weapons programme
Accused of producing anthrax
Educated in UK's University of East Anglia
Surrendered to US forces in May 2003
Considered important target, but not on US list of 55 most wanted Iraqis
Ms Taha is said to have carried out top-secret work during the 1980s on germs that cause botulism poisoning and anthrax infections.
The second woman, Huda Salih Mahdi Ammash, "may be released soon", the Iraqi justice ministry said.
Ms Ammash, a biotech researcher known as Mrs Anthrax and Chemical Sally, was on the US military's list of the 55 most-wanted members of Saddam Hussein's regime.
Adnan Ali, a spokesman for Iraqi Vice-President Ibrahim al-Jaafari, told the BBC the releases were still uncertain and would have to be approved by the prime minister and president.
An Iraqi spokesman said Ms Taha's planned release was part of a review of her detention, adding she was no longer considered a threat to national security.
"The Iraqi authorities have agreed with coalition forces to conditionally release Rihab Rashid Taha on bail," said spokesman Noori Abdul-Rahim Ibrahim.
British family's hope
The BBC's Caroline Hawley in Baghdad says that, although Ms Taha comes under the Iraqi judicial system, she is physically in the custody of the US which would have to have a role in her release.
The family of hostage Kenneth Bigley, 62, has welcomed news of the planned prisoner release.
Mr Bigley's brother Paul told BBC radio: "Hopefully they [the kidnappers] will pick this up on the media, and show that they have a gram of decency in them by releasing Ken."
The three hostages were kidnapped on Thursday by militants claiming to be from the Tawhid and Jihad group, headed by al-Qaeda suspect Abu Musab al-Zarqawi. The group claims to have killed at least six hostages in Iraq.
Gruesome video footage was released on Monday showing Mr Armstrong being killed by a masked man - said by the CIA to be Mr Zarqawi. Mr Armstrong's body was later recovered.
"The British prisoner will get the same fate if the British government doesn't do what it has to," said a statement on an Islamist website.
More than 100 foreigners have been abducted in Iraq over the past 17 months, as part of efforts to destabilise the US-backed interim government and to drive out foreign troops.
They include two French journalists who were abducted last month and two female Italian aid workers who were seized with two Iraqi colleagues on 7 September.
Tawhid and Jihad is considered to be the most ruthless of the hostage-takers.