E-commerce player Snapdeal has rejected an initial takeover offer from its larger rival Flipkart this week, but the talks between the two camps that have been attempting to forge a deal for months continue, said two sources close to the matter.

Flipkart's initial bid for Snapdeal came in below the widely anticipated $1 billion valuation, said one of the sources.

A newspaper report said on Tuesday that Flipkart's bid was worth $700-$800 million, while another publication said the bid had come in between $800-$900 million.

Snapdeal, which is operated by Jasper Infotech, opened its books to Flipkart in May for the company to run a due diligence process on it. Japan's SoftBank, Snapdeal's biggest investor, is keen to fold the e-commerce firm into Flipkart as it plans to invest in the larger player at the same time and sell Snapdeal in an all equity deal, giving itself a sizeable stake in India's biggest e-commerce firm. “The due diligence came up all clean,” said one of the two sources, adding that the low-ball offer put forward was hence inexplicable and therefore rejected. “I think it's basically just negotiation,” said the source.

Flipkart's offer, made before a July 2 deadline during which sale talks were exclusive between the two companies, is not the end of negotiations, the source said.

The second source also said that talks would continue and added a deal is expected to be finalised by mid-July.

Flipkart, Snapdeal and its key investors did not immediately respond to requests for comment.

Flipkart has not currently bid for Snapdeal's logistics arm Vulcan Express and its digital payments venture FreeCharge, said the first source, adding that these assets may be sold separately. SoftBank is expected to invest about $1 billion in Flipkart through a fresh cash infusion and by buying equity stakes from its investors Tiger Global and Naspers, sources have previously told Reuters .

The deal is likely to help Flipkart, which is already backed by Microsoft Corp, China's Tencent and online auction site eBay, to stay ahead of Amazon in the world's fastest-growing internet services market.

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