Lampeter University is facing financial problems
A merger between Wales' oldest university and a college could be made by the end of the year, say officials.
The University of Lampeter said its talks with Trinity College Carmarthen could result in a merger or just closer ties.
Lampeter's president Dr R Brinley Jones has confirmed a working group has been formed to debate the issue.
There has been strike threats over redundancies at the university, and a review of its management and future.
Dr Jones said the proposal about Lampeter's future was likely to be formulated by the end of December. It will then be put to the two institutions' councils.
Trinity College Carmarthen said it could confirm it was engaged in "detailed discussions" regarding the possibility of creating a new university in west Wales.
"A working group of governors from the two institutions has been appointed with the aim of bringing a recommendation to the councils of both institutions," said a spokeswoman.
Lampeter university in Ceredigion is the oldest in Wales and one of the smallest in the UK.
In recent months, the university has had strike threats over redundancies, and there is a review of its management and future.
It is facing a significant increase in next year's pay costs and has to make cuts.