(Reuters) - Malaysian conglomerate Axiata Group and Indonesian group PT Sinar Mas are going ahead with plans to merge their telecom operations in Indonesia to create a $3.5 billion entity, Bloomberg News reported, citing people familiar with the matter.

The companies plan to merge their Indonesian units, PT XL Axiata and PT Smartfren, and are currently discussing the structure of a deal which could involve a mix of cash and shares, Bloomberg News said on Thursday.

A non-binding agreement may be reached in the coming months, allowing the companies to continue negotiations and carry out due diligence, the report said, adding that there was no guarantee that a deal would go through.

Telecommunications and digital conglomerate Axiata, XL Axiata, conglomerate Sinar Mas Group and Smartfren did not immediately respond to Reuters' requests for comment.

Last week, telecom operator Dialog Axiata, which is majority owned by Axiata, signed an agreement to buy Bharti Airtel's operations in Sri Lanka.

(Reporting by Echha Jain in Bengaluru; Editing by Savio D'Souza and Subhranshu Sahu)