Estonia has been a member of the EU since 2004. Homosexual acts were decriminalised in 1999.
Details are not yet being revealed but amendments to inheritance, property rights and citizenship will be included.
Unmarried heterosexual couples could also benefit from the draft law.
In December 2005, a new Family Law proposal by the Estonian Ministry of Justice explicitly stated that marriage is exclusive to heterosexual couples.
There was an outcry from gay activists, which sparked much public discussion of the subject. Various right-wing parties have opposed any extension of matrimonial rights to gay and lesbian couples.
Jaan Kroon, coordinator of Gay and Lesbian Information Centre in Tallinn said "they hope that not only same-sex but also heterosexual couples will cooperate on the draft law."
Same-sex couples are not demanding church weddings or marriage rights but they do want the right to adopt their partner's biological child.
According to a poll conducted by Estonian newspaper Eesti Päevalehelt most parliamentary fractions 101-member Riigikogu support the cohabitation law for same-sex partners but do not support same-sex partner adoption rights.
In 2006 Tallinn Pride was marred by violence.
15 people were injured after being attacked by groups of skinheads with sticks and stones.
The Tallinn police tried to alter the parade route in 2007, claiming their presence would infringe the rights of other residents to go about their business. However, the route was authorised after protests by gay rights activists.