The source confirmed the federal government believed Mr Loughner was now competent to stand trial and will argue that in court tomorrow.
Mr Loughner is willing to change his plea to guilty at the previously scheduled hearing, the source said.
Psychiatric experts who examined Mr Loughner were scheduled to testify in a mental competency hearing tomorrow that he was competent to stand trial and understood the 49 charges against him, the Los Angeles Times reported.
A spokesman for the US Attorney’s office in Phoenix said he could “neither confirm nor deny” if the accused would plead guilty. The team of four attorneys representing Mr Loughner had not responded to requests for comment.
Ms Giffords, an Arizona Democrat seen as a rising star in the party, was holding a “Congress On Your Corner” event at a Tucson supermarket in Jan 2011 when she was shot through the head at close range by a gunman who killed six other people, including a federal judge and a 9-year-old girl.
Mr Loughner, 23, is charged with 49 criminal offences including first-degree murder over the shooting rampage, which wounded 13 people. A not guilty plea was entered on his behalf last year.
The Wall Street Journal said tomorrow’s mental status hearing had been changed to a change-of- plea hearing, citing an official familiar with the case.
If US district judge Larry Burns were to determine that he was fit for trial, Mr Loughner — who is being forcibly medicated to treat his psychosis — could face the death penalty if found guilty.
The college dropout was determined unfit for trial in May 2011 after experts said he suffered from schizophrenia, disordered thinking and delusions.