March 26 (Reuters) - Paper and packaging company DS Smith said on Tuesday that it is in discussions with U.S.-listed International Paper regarding a proposal to buy the British packaging firm through a possible all-share offer.

Under the terms of the proposal, DS Smith shareholders would receive 0.1285 shares in International Paper for each share they own in DS Smith, resulting in DS Smith shareholders owning about 33.8%. of the combined International Paper-DS Smith group.

Earlier this month, Mondi reached an agreement in principle for an all-share offer to buy smaller rival DS Smith for 5.14 billion pounds ($6.57 billion) to create a paper and packaging giant worth more than 10 billion pounds in market value.

($1 = 0.7918 pounds) (Reporting by Shivani Tanna and Annett Mary Manoj in Bengaluru; Editing by Shailesh Kuber and Maju Samuel)