The 40-year-old singer was reportedly thrilled when her Spanish boyfriend of seven months Andres Velencoso popped the question during a romantic trip to New York earlier this month.
A source told Britain's Grazia magazine: "Andres told her he wanted to wake up next to her every day for the rest of his life. She asked him if she knew what he was saying and if he was serious, and when he said yes and that he wanted to marry her, she was thrilled."
The smitten couple have yet to find the perfect engagement ring so Kylie has taken to wearing a diamond heart band on the fourth finger of her right hand until they do.
The source added: "She calls it her Spanish heart. Everyone is convinced Kylie has found her soulmate in Andres - she is quite clearly head-over-heels in love. He equally seems to adore her. His nickname for her is Minnie and he even drew her a picture of Minnie Mouse. We've never seen her so happy."
Kylie, who turns for 41 on Thursday (28.05.09) - recently confirmed she is blissfully happy with Andres.
She said: "I feel relaxed, happy, excited and just totally content with my life. I'm having a good time.
"I'm just doing things I never would give myself time to do. I'm finding my balance and I'm giving myself space just to be me.
"I feel good about everything in my life at the moment. I'm a very, very happy girl."
Kylie, 40, and Andres, 31, met at a party thrown by burlesque star Dita von Teese last October. He moved into her London home in February.