In a statement noting media speculation, the FTSE 100-listed betting firm said "discussions, regarding a potential combination of the Group's US business and FanDuel to create a combined business to target the prospective US sports betting market" are ongoing.
It added, however, that "there is no certainty as to whether agreement will be reached, or as to the terms or timing of any transaction" and said a further announcement will be made as appropriate.
The company's statement comes following a report on the Legal Sports Report (LSR) website which did not give details on any bids or timing.
The move comes with investor interest high in business opportunities for the betting industry after the US Supreme Court on Monday paved the way for states to legalise sports gambling,
The LSR report noted that FanDuel CEO Matt King recently indicated that his company would be interested in getting into the sports betting space.
FanDuel was part of merger discussion last year with rival DraftKings but the plan was scrapped in July after a legal challenge by the US Federal Trade Commission.
Almost exactly a year ago, Paddy Power Betfair acquired daily fantasy sports platform Draft in a deal worth around US$50mln.
In early morning trading, Paddy Power shares gained 0.8% at 7,825p.
Neil Wilson, chief market analyst at Markets.com, said: "As far as bookmaker friendly results go, the Supreme Court's PASPA ruling is as amiable as they come.
“No great surprise therefore to see some moves already in the space and making the early running in terms of deals is PaddyPower Betfair, which is raising its stake in the battle for US sports betting market share.”
He added: “FanDuel rival Draft Kings has already said it will enter the sports betting market and there is some sense that local incumbents may be able to gain significant market share before UK/European operators get a chance to mobilise their forces.”
-- Adds share price, analyst comment --