The bout was first reported by Brazil's Portal Do Vale Tudo.
A source told MMA Fighting on Monday that while the matchup isn't yet official, it is the intended direction of the promotion.
Machida was intended to be the division's top contender in February, after beating Dan Henderson by split decision at UFC 157. But champion Jon Jones is hurt, and has voiced a preference for a bout with Swede Alexander Gustafsson, sending Machida in a new direction.
Machida (19-3) has won three of his last four bouts and has his only career losses to former champions Jones, Quinton "Rampage" Jackson and Mauricio "Shogun" Rua. The match will mark his first bout in Brazil since April 2006.
UFC 163 takes place on Aug. 3 from the HSBC Arena in Rio.
UPDATE: On Monday evening, the UFC officially confirmed the fight's booking to MMA Fighting.