The Italian striker is believed to be nearing the exit door at the Etihad Stadium after a series of below par Premier League displays and off-field misdemeanours.
Milan have long been interested in the 22-year-old, despite him having played for local rivals Inter.
After selling a number of their top attacking talents, including Zlatan Ibrahimovic and Alexandre Pato, the San Siro club are said to be keen to bring in reinforcements.
Balotelli has been highlighted due to his standing in the national team and potential to develop.
Milan manager Massimiliano Allegri was reluctant to reveal his transfer plans, but hinted that the front-man was in his thoughts:
“Balotelli? I won’t think about him because he is a Manchester City player,
“If he arrives here, then I’ll consider how to approach him. Obviously, I wouldn’t say no.
“We are setting up a good, disciplined group and that is important in a difficult League like Serie A.”
Balotelli moved to the Etihad Stadium in 2010 for a reported fee of £18m from Inter Milan.
He has shown glimpses of his potential, but has, on the whole, struggled to acclimatise to English football.
The Italian was a key part of his nation’s squad which as runners up to Spain during the 2012 European Championships.