Tokyo will set aside several trillion yen in public funds that TEPCO can dip into if it runs short for payouts to people affected by radiation leaking from its Fukushima Daiichi plant, the Yomiuri Shimbun said.

The nuclear power station was damaged by Japan's March 11 earthquake and tsunami, and radiation has leaked into the air, soil and sea, forcing tens of thousands in a 20 kilometre (13 mile) radius to evacuate and leading to bans on local farm produce.

Shares in TEPCO are down almost 80 percent since the quake and tsunami on expectations it will face huge compensation claims totalling around 10 trillion yen ($120 billion), according to some estimates.

The Yomiuri said public funds will be stored in the form of interest-free bonds that can be converted into cash at a body that would be jointly established by the government and TEPCO, the daily said, citing sources.

The envisaged scheme would allow TEPCO to procure funds from the body to cover compensation and repay over a long term, while the company will be obliged to submit a business restructuring plan to the government.

The measure differs to nationalisation, under which the government would own more than 50 percent of the company.

Tokyo has denied speculation that it plans to nationalise the beleaguered utility amid growing public anger at the firm's response to the crisis and expectations of a soaring compensation bill.

The government judged it necessary to clarify the responsibility of TEPCO by letting the company directly pay compensation, the Yomiuri reported.

Tokyo will also bolster its involvement in TEPCO in terms of monitoring the company's funds and management in order to avoid disruption to the market and electricity supply, according to the report.

The government on Friday ordered TEPCO to offer initial payouts to tens of thousands of people made homeless by the ongoing crisis, with one million yen going to each family living around the stricken plant.

The daily also reported that TEPCO has started negotiations with its labour union on slashing several thousand personnel over about five years and cutting employees' annual salaries by about 10 percent.

The utility at the end of last year had more than 36,000 staff.

TEPCO intends to secure funds totalling approximately 400 billion yen through the restructuring and other measures such as asset sales, the report said.

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