Snapdeal competes in India with bigger rivals Flipkart and Amazon, and media reports have said it is seeking $1 billion (roughly Rs. 6,281 crores) in its latest funding round to fuel growth.
In October last year, Snapdeal secured a $627 million investment from Japan's Softbank, itself an early backer of Alibaba.
The source, who declined to be named as talks are not public, said on Wednesday that negotiations were "ongoing", confirming Indian media reports. The source said Alibaba was "looking, but there's still no deal".
A second source familiar with the matter confirmed the two sides had spoken in the past and said investor interest was "high", but gave no detail on any current negotiations.
Snapdeal declined to comment.
Alibaba has been eyeing India for months, but has yet to invest directly in the e-commerce space. Ant Financial, an affiliate of Alibaba controlled by senior Alibaba executives, bought a 25 percent stake in the Indian payment services provider behind Paytm last month.
© Thomson Reuters 2015
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