"SSAB has participated in several different discussions concerning consolidations in the European steel industry," the company said. "The discussions with Tata are ongoing but no decisions have been made."
The news comes as European steelmakers look for ways to restructure in the face of over-capacity, cheap Chinese imports and the fallout from the COVID-19 crisis, which has made it virtually impossible for them to turn a profit.
Tata Steel Chief Financial Officer Koushik Chatterjee said on a conference call with analysts on Friday that the company was engaged in consultations with stakeholders.
"Subject to regulatory approvals, we hope to close the transaction in the next six to nine months," Chatterjee said.
Dutch Prime Minister Mark Rutte welcomed the news, saying a takeover by SSAB could improve prospects for the massive IJmuiden plant and help make production there more sustainable.
"At first sight, this could be an attractive combination", Rutte told Reuters at his weekly press conference.
"Their activities are complementary, without much overlap. And both companies have ambitious sustainability targets."
The Dutch government has repeatedly stressed the importance of the IJmuiden factory for the country's economy and for reaching climate targets.
Tata Steel, the largest corporate polluter in the Netherlands, employs about 9,000 workers in IJmuiden and 2,000 elsewhere in the country.
An SSAB-Tata Steel deal would narrow consolidation options for Germany's Thyssenkrupp, Europe's second biggest steelmaker after ArcelorMittal.
Billionaire Rakesh Jhunjhunwala, a major investor in Indian shares and partner at Rare Enterprises Private Ltd, pressed Tata's management on the call for details about its operations, including the terms of the deal with SSAB.
In response to a question from Jhunjhunwala about the deal, Chatterjee said Tata Steel received a non-binding offer from SSAB which indicated broad commercial terms but did not disclose the financial terms offered.
Tata Steel has been looking to overhaul its European steel business for a while, but a joint venture with Thyssenkrupp's steel business was blocked last year on antitrust grounds.
The Indian steelmaker said on Friday it had begun the process of splitting up its European division, which is made up of Tata Steel Netherlands and Tata Steel UK, adding that it would pursue separate strategies for the two units.
Tata said it continued to discuss possible UK state aid for its British business, adding that it was reviewing "all options to make the business self-sustaining".
Thyssenkrupp, which has held talks with both SSAB and Tata Steel, is currently reviewing a non-binding indicative offer for its steel business from Britain's Liberty Steel.
(Additional reporting by Christoph Steitz in Frankfurt, Tom Kaeckenhoff in Duesseldorf and Sudarshan Varadhan in Chennai; Editing by Niklas Pollard, Mark Potter and David Clarke)
By Johannes Hellstrom, Bart H. Meijer and Abhirup Roy