By Mary Wisniewski

CHICAGO (Reuters) - Former U.S. House Speaker Dennis Hastert is expected to plead guilty in a hush-money case stemming from allegations of sexual misconduct in a deal with prosecutors that could still force him to serve time in prison.

The tentative plea agreement, disclosed during a brief hearing in federal court in Chicago on Thursday, would mark a dramatic downfall for someone who once ranked among the most powerful men in the country.

Hastert, 73, was charged in May with trying to hide large cash transactions as part of a payoff scheme and lying about it to the Federal Bureau of Investigation.

Prosecutors and defense attorneys did not say what charge he would plead guilty to or whether his sentence might include incarceration.

Federal prosecutors have accused him of agreeing to pay $3.5 million to an unidentified person from his hometown of Yorkville, Illinois, to conceal past misconduct. He was a teacher at Yorkville High School in the 1960s and 1970s.

That person has not surfaced publicly, but anonymous law enforcement sources have told several media outlets that Hastert was trying to cover up sexual abuse of a male student when he worked as a high school teacher and wrestling coach.

Hastert's agreement, to change his plea to guilty from not guilty in the case, is expected to be submitted to U.S. District Judge Thomas Durkin on Monday, attorneys for Hastert said.

Hastert, who is free on bond, was not required to attend Thursday's hearing and was not in court. He has not spoken publicly since his indictment, but Durkin set Oct. 28 as the date for him to change his plea.

Hastert was the longest-serving Republican speaker, leading the House for eight years before leaving Congress in 2007 and becoming a lobbyist.

After his indictment, Hastert resigned from the Dickstein Shapiro lobbying firm in Washington, D.C., and from the boards of exchange operator CME Group Inc and REX American Resources Corp .

His alma mater, Wheaton College, a private Christian liberal arts school in suburban Chicago, removed his name from a policy center.

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Lawyers for both sides said in September they were negotiating a plea deal to keep the case from going to trial. Durkin had asked both sides to bring him an agreement this week, or he would set a trial date.

Defense attorney Amy Richardson, who is not involved in Hastert's case but often handles financial fraud matters, said it is unlikely Hastert will avoid jail time if he pleads guilty to a charge of "structuring" cash withdrawals to avoid detection by banking officials.

Such a plea could, however, avoid the public release of potentially embarrassing information about the case.

"One of the best side effects of taking the plea is that material regarding reported sexual abuse will not come out," said Richardson, of the firm Harris, Wiltshire & Grannis.

Richardson said Hastert also may decide to waive a sentencing hearing, which otherwise would allow people to talk about his past behavior, both good and bad.

According to the indictment, Hastert withdrew $1.7 million in cash from his bank accounts from 2010 to 2014. He is charged with structuring $952,000 of the withdrawals, taking the funds out in increments of under $10,000 to evade a requirement that banks report large cash transactions.

Hastert then told the FBI that he was keeping the cash for himself, which the indictment said was a false statement.

Each of the charges carries a possible maximum sentence of five years in prison and a $250,000 fine.

(Writing by David Bailey; Editing by Jeffrey Benkoe and Tom Brown)