Balotelli, 22, has been linked with a move away from Etihad Stadium despite Roberto Mancini's efforts to keep him. The Italian striker has not been a regular at the club and could seek first-team football elsewhere.
AC Milan have turned favourites after denying rumours of a possible move. Club president Silvio Berlusconi apologised for calling Balotelli a 'rotten apple' for his antics off the pitch.
Balotelli, who is on a £130,000-a-week contract with City, has failed to replicate his form in the EURO 2012 campaign with Italy.
The young Italy international made only seven starts this Premier League season with a total of 14 appearances and scoring only once for the English champions.
Mancini has been active in the transfer window but has been told to sell first before making any moves for potential targets. Edin Dzeko has been linked with a move to Arsenal and the Germany Bundesliga.
The Italian boss is keen on signing Edinson Cavani from Napoli but already had a £45million bid rejected. Napoli want nearly £55million for the Uruguayan.
Meanwhile, Balotelli's future became uncertain after he took City to a tribunal in an attempt to reverse a two-week fine imposed on him for the ill-discipline which saw him miss 11 games due to suspension.
The striker called off the tribunal and finally accepted a £340,000 fine. But a few weeks later Balotelli was pictured having a scuffle with Mancini for a nasty tackle on Scott Sinclair.