A British official in China said a new building would have to accommodate about 400 employees and would not be ready for at least three years.
The source added that the project is complicated, as the embassy is located in three buildings on different sites. "We are looking into whether it is feasible to have all the functions on one site. At the moment we have to send people to a different building to get visas."
The project will also need to take security issues into account. The Chinese government has been concerned by last year's terrorist attacks and an influx of North Korean refugees, who have walked into foreign embassies to request visas.
The Foreign Office is considering a revamp for its embassy in Warsaw. An spokesperson said: "We are looking into the possibility of upgrading the embassy and the [ambassador's] residence."