The former Inter Milan player's future is uncertain in England after starting just one of his club's last eight matches in all competitions, including only making a substitute appearance in Tuesday's defeat by Borussia Dortmund.
City boss Roberto Mancini has been a long-term fan of Balotelli but it appears his trust in the 24million summer 2010 signing is slipping after several negative headline-grabbing incidents.
And Milan could be ready to offer the Italy international a return to his homeland with a bid when the transfer window opens in less than a month.
Speaking before Milan's Champions League defeat by Zenit St Petersburg on Tuesday night, boss Massimiliano Allegri said of Balotelli: "He is an important player with extraordinary physical and technical qualities.
"I believe, however, given his qualities, he threw away a few years of his career."
Allegri has also hinted current Milan star Stephan El Shaarawy and Balotelli would make a lethal attacking combination for the club.
"I think they have done good things with the Italian national team," said Allegri. "But I want to talk about AC Milan and the players I have. Then, in January, we will see what happens."
Milan president Silvio Berlusconi has also suggested a move for Balotelli is not just a fantasy after giving a teasing response when asked about the 22-year-old.
Berlusconi told Sky Sport Italia when questioned if Balotelli is a dream: "No, it's not a dream. I never dream."
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