A deal could value the stake in BRK Ambiental, as the company is known, at around 2 billion reais ($520 million), said the sources, who asked for anonymity because the talks are private.
The stake, owned by workers' severance fund FGTS, is managed by Brazilian state bank Caixa Economica Federal, which has been divesting from most of its noncore assets.
Caixa Economica and Brookfield did not immediately reply to requests for comment.
Caixa has sold stakes it owned in Brazilian reinsurer IRB Brasil Resseguros SA and in state-controlled oil company Petroleo Brasileiro SA. So far it has sold around $2.6 billion in equity stakes.
Initially, Caixa proposed, as manager of FGTS, an initial public offering of the water and sewage company, but Brookfield is not interested in having a separate listed entity in Brazil and decided to make an offer to acquire the stake from FGTS.
Brookfield acquired a 70% stake in the company in October 2016 from construction conglomerate Odebrecht SA, for around 3.5 billion reais ($910 million).
Since the acquisition, Brookfield changed the name of the company and injected capital, so the final value of the deal should reflect the investments over the last two years, one of the sources said.
There is no time frame for the deal because the workers' severance fund board and Caixa are discussing the best criteria on which to value the assets, and apply them to all the stakes owned by FGTS.
(Reporting by Tatiana Bautzer in Sao Paulo; Additional reporting by Carolina Mandl in Sao Paulo; Editing by Matthew Lewis)
By Tatiana Bautzer