The company said on Wednesday that it would use gear from Huawei and Finland's Nokia to build its 5G network, provided Huawei equipment met the government's security requirements, The Wall Street Journal reported.
Both Nokia and Huawei would supply equipment for 5G antennas, Telefónica said, adding that a decision on suppliers for the core network would be made in 2020.
Telefónica spokesman Klaus Schulze-Löwenberg was quoted as saying the company had "clearly taken care not to pre-empt the ongoing political process of defining these security guidelines and at the same time not to delay the start of the 5G rollout".
In October, the German Government said it would not be banning any vendor from participating in the 5G rollout, with spokesman Steffen Seibert saying all vendors would be treated alike.
Contacted for comment, a Huawei Australia spokesperson said there was no official word on the deal from the company as yet.
For a number of years, the US has been running a campaign against Huawei to prevent the company from being signed up for 5G contracts in countries Washington considers allies. Thus far, apart from the US, only Australia has made a public statement about banning Huawei from participation in any 5G rollout.
Japan and Poland have been reported to be taking a similar stance, but have not made a public statement to that effect as yet.
The Trump administration placed Huawei and 68 of its affiliates on its Entity List on 16 May, meaning that the company would have to seek permission to purchase any American components it needed to manufacture its products.
This came after many years of accusations that Huawei posed a danger to the US because the Chinese Government could use its technology as a means of spying.
On 21 May, the US Commerce Department eased some of the restrictions until August, allowing Huawei to maintain and update existing networks and handsets. The company has since been granted two more extensions.
There have been reports recently that Huawei is assembling its latest smartphones with non-US technology.