Spiegel said the ministry had presented the proposal to an Israeli delegation visiting Berlin last week, and it would be worth an average of €15,000 (£12,500) extra to each of the 130,000 former ghetto workers living in Israel.
Germany first began paying pensions for ghetto workers in 1997. Those who applied later than that year could only claim four years' worth of back payment. The new legislation would overrule that, and allow all to claim from 1997, Spiegel said.
A spokesman for the Labour Ministry declined to comment on the report but said the new government which took office in December 2013 had pledged to find a solution to the issue as quickly as possible.
"A lot of progress has been made already," he added.
The Nazis established at least 1000 ghettos across occupied Europe, enclosing the local Jewish population in miserable conditions.