A cash injection is now likely to exceed that figure, two people close to the matter said, with one person adding it could total 3.5 billion.
The collapse in talks hit MPS' subordinated bonds on Monday, due to concerns junior creditors would be asked to share in any losses to comply with European Union rules designed to shield taxpayers.
Private investors contributed 2.8 billion euros to MPS' 2017 rescue through a debt-to-equity swap.
This time round, the Treasury wants to involve private investors in MPS' capital raising, which would also have happened under the UniCredit deal. This will shield junior bondholders from losses because EU state aid rules would not apply, the first source said.
The government was preparing to boost MPS' capital before selling selected parts to UniCredit, to meet demands that the deal should leave UniCredit's capital reserves intact and boost its earnings per share.
Rome will now implement some of the measures offered to UniCredit as part of a stand-alone solution for MPS, sources have said.
The plan will clear MPS of its residual problem debts that will go to state-owned bad loan manager AMCO.
State agency Fintenca will take on risks from MPS' pending lawsuits, the first source said, confirming a scheme that had been devised as part of the UniCredit deal based on a confidential document seen by Reuters.
Implementation of the plan is likely to be preceded by a change of leadership at MPS.
Rome will also seek an extension of deadlines agreed with European Union authorities to re-privatise MPS.
Tuscany-based MPS has always been deemed "too big to fail" in Italy, where it became the country's third-largest bank after an ill-advised acquisition on the eve of the 2008-2009 global financial crisis.
Also, the bank's importance to Tuscany's local economy, a traditional stronghold for Italy's Democratic Party, now part of the ruling coalition backing Prime Minister Mario Draghi, has made winding it down a non-starter.
In an attempt to sort out its biggest banking problem once and for all, Rome had chosen UniCredit take on MPS, which this summer emerged as the euro zone's most vulnerable bank in an industry-wide stress test.
Intesa Sanpaolo ISP.MI , another possible candidate to rescue MPS given its size, hit antitrust limits with last year's UBI acquisition, while Banco BPM, which the Treasury had also considered, has denied any interest, in addition to being too small.
A source close to the bank on Monday said Banco BPM's position was unchanged.
By 0906 GMT shares in MPS fell 2.8% while UniCredit shares eased 1.2%.
($1 = 0.8593 euros)
(Additional reporting by Sara Rossi and Andrea Mandala in Milan; Editing by Kirsten Donovan and Jane Merriman) ((email@example.com; +39 02 6612 9526;))