Xavi spent most of the day in meetings with Barca officials and agreed to honour the last year of his contract, with a series of unspecified conditions set by the club, sources said.
Xavi is set to speak to the media on Sunday, prior to their LaLiga game against Valencia and club president Joan Laporta is expected to hold a press conference on Thursday to talk about the decision.
"Xavi will continue and is very excited, there is unanimity in the club's board that he should continue," club vice-president Rafa Yuste told reporters outside Laporta's home in Barcelona later on Wednesday.
Xavi played for Barcelona for 17 years, making 767 appearances and winning 25 trophies, including four Champions League titles and eight LaLiga crowns.
But despite being a club great and winning LaLiga last term, Barca's stuttering form this season put him under pressure.
When he first announced his decision to step down in January, Xavi said that he felt "liberated", adding that the pressure and demands of the job meant that he could not enjoy himself at his boyhood club.
Xavi said then that his decision was "for the good of the team" and that the players would "be freed up" moving forward. His words were heavily criticised by pundits, but seemed to have a positive impact, with Barca going unbeaten in their next 13 competitive games.
Yet two defeats in their last two games have left them facing a trophyless season. A 3-2 LaLiga loss at leaders Real Madrid on Sunday left them 11 points adrift of their bitter rivals with six games left.
That defeat came a few days after they were knocked out of the Champions League in another heartbreaking 4-1 defeat against Paris Saint-Germain.
Sources told Reuters that Xavi was promised that no major changes in his staff were expected and Laporta assured him that they will be able to sign top-level players, despite the club's deepening financial problems.
Barca face challenges related to their massive wage bill and a 1.6 billion-euro Camp Nou stadium renovation project and it could be another challenging close-season for Xavi in the transfer market when they may be forced to sell key players to meet LaLiga's financial control requirements.
