The Mali international failed to earn a new contract at Craven Cottage following the 2012-13 season after an injury-plagued year.
A long-standing knee injury limited Diarra - who at one time cost Real Madrid £20million - to just 19 appearances for the Cottagers.
However, reports suggest the African defensive midfielder is now in line to sign a six-month deal with the Greek giants.
"I have contact with the Greek club and we will be talking again this week to agree something," he told Sky Sports.
"I think I can still play at a good level. They are in the Champions League and I can bring my experience to the team but nothing is done yet.
"I have enjoyed my time at Fulham, it is a friendly club and I would like to thank the club for everything they have done for me. I wish them good luck in the Premier League."
Panathainikos are currently fourth in the Greek Super League, behind Olympiakos, PAOK and Atromitos.