It has been more than two weeks since Leeds sacked Jesse Marsch and their search for a new manager has seen several failures.
Carlos Corberan, Andoni Iraola and Arne Slot rejected approaches from Leeds and the club eventually handed the reins to Under-21s boss Michael Skubala on an interim basis.
But a defeat to Everton over the weekend pushed Leeds to renew their search and it emerged on Monday that Gracia is someone they are looking at.
And it has been claimed that talks between Leeds and the former Watford boss have progressed well.
The Spaniard is now expected to be confirmed as the new manager at Elland Road until the end of the season for now.
Gracia is being brought in to firefight and help Leeds to avoid relegation from the Premier League in the ongoing campaign.
He has had experience of managing in the Premier League where he was in charge of Watford and was the only manager to last more than 12 months at Vicarage Road in the last ten years.
The 52-year-old has been out of work since he left Qatari side Al Sadd last summer and is now set to return to England.
