Contact is understood to have been initiated by the Italian clubs, with a race against the clock to strike a deal before Thursday's transfer deadline.
Reports in Italy has suggested Milan are prepared to pay around £20 million (Dh115.6m) plus add-ons but no offer has yet been accepted by City.
The 22-year-old, who has travelled with the Manchester City squad to London for tomorrow's English Premier League game against QPR, cost the champions £24 million when he signed from Inter Milan in August 2010.
Balotelli's future has been a matter of uncertainty since a below-par display in the derby defeat by Manchester United on December 9.
He has not started a game for the club since, first after being dropped and then because of a spell out through illness.
There have been two substitute appearances in January but he has slipped to fourth-choice striker behind Sergio Aguero, Carlos Tevez and Edin Dzeko, and has just three goals this season to his name.
He was also involved in a high-profile training-ground bust-up with Roberto Mancini, the Manchester City coach, earlier this month.
Mancini had insisted that the Italy international, who has three years remaining on his contract at the Etihad stadium, would not be leaving the club, but he has been consistently linked with a move to Milan.
Bursaspor have signed Anton Ferdinand on loan from QPR until the end of the season.
The 27-year-old joined the Premier League side from Sunderland in 2011 but has struggled for form this season.
The defender moves to Turkey on a loan deal until the end of the season, with a view to a permanent deal, and will link up with England goalkeeper Scott Carson.
Eintracht Frankfurt have brought in Croatian forward Srdjan Lakic on loan from VfL Wolfsburg until 2014.
The 29-year-old Croatian, who has scored 16 goals in 68 Bundesliga games, has struggled to keep in Wolfsburg's starting line-up since his 2011 move from Kauserslauten.
"We are happy to have finally sealed this deal," said Bruno Huebner, Frankfurt's sports director.
"We have now brought in a player who is very good with headers and fits perfectly with the playing style of our club and the demands of coach Armin Veh."
Juventus signed Ecuadorean midfielder Jose Francisco Cevallos Enriquez from LDU Quito.
The 18-year-old, who has starred for Ecuador's under-20 national team, has joined the Turin giants on loan until the end of the season with an option to make the transfer permanent.
Juventus said in a statement that Enriquez "has forged a reputation as one of the most promising teenage prospects in South America".
The Scotland international has not featured for the English Premier League this term, but is poised to end his frustration with a move to La Liga.
The former Rangers and Tottenham will move to Mallorca on loan until the end of the season, with a view to a permanent deal.
The 27-year-old travelled with the Swansea squad ahead of tonight's Premier League meeting with Sunderland, and is available for selection.
Sunderland and Norwich have previously made bids for the 27-year-old former record signing, although Laudrup insisting higher offers would be required before Swansea would consider letting the forward leave.
"I will understand it because I don't want players who are unhappy who have a very good chance of going somewhere else," he said.
"But then again there is the economic part of it between the clubs, and if the bids are not high enough the player will stay anyway."
Laudrup also criticised the continuing speculation over the player's future caused by the transfer window, adding: "If somebody really wants someone, you have one month, why wait until the last 24 hours?
"We call it the January transfer window. It starts January 1 and now we are at January 28. So if someone really wants Danny and want him so badly, why wait until that last day?
"I don't want to go into which club has done what. I just want to say the clubs that have put in a bid for Danny have not offered enough."
Galatasaray have confirmed the signing of Didier Drogba on an 18-month deal from Shanghai Shenhua.
"An agreement has been reached with Didier Yves Drogba of Shanghai Shenhua football team, starting from the second half of 2012-2013 season for a 1.5 year period," the club said on its website.
Drogba left Chelsea for China last year after helping the west London side to their first Champions League title.
Galatasaray, who are currently five points clear of Fenerbahce at the top of the Turkish league, have already made a major statement in the transfer window by landing Dutch midfielder Wesley Sneijder from Inter Milan earlier this month.
Malaga have agreed an improved contract with Isco, their in-demand midfielder, after raising his buyout clause from 21 to 35 million euros (Dh173m).
The 20-year-old playmaker, who is on the fringes of the Spanish national team, has agreed an improved salary and will remain with the Qatar-backed club until 2016.
"There were offers but it was my aim to stay here," the player said.
"I want to continue developing as a player and there is no better place to do that than with Malaga. It wasn't that important to extend the number of years. I still have this season and three more years."
Isco was voted by coaches the 'revelation player' of La Liga last season and he won the 'Golden Boy' trophy as the best Under-21 player in Europe.
The youth international was called up into Vicente del Bosque's provisional squad for Euro 2012 and he has been a leading light in Malaga's first Champions League campaign.
West Ham have confirmed the signing of Emanuel Pogatetz on loan until the end of the season.
The Austria international defender, who played for Middlesbrough between 2005 and 2010, has joined the Hammers from Wolfsburg.
"I feel very good to be here and I am very excited about playing for West Ham," he told the club's website.
"I am looking forward to the opportunity to play for the club and help it get good results. I will be doing my best to play well and hope I can play a part in the club achieving the targets for this season."
The 30-year-old, who has 52 caps for Austria, developed a reputation as an uncompromising defender during his previous spell in the Premier League.
Lewis Holtby has completed his dream move to Tottenham six months ahead of schedule.
The English Premier League side had announced earlier this month that they had beaten a host of top European clubs to the Bosman signing of Holtby, but the 22-year-old hinted he would be willing to move to White Hart Lane in January, rather than at the end of the contract.
Schalke initially seemed reluctant to let the midfielder leave immediately, rejecting two bids from the Premier League club, but Tottenham have now confirmed today that they had come to an agreement with the Bundesliga side for a fee that is understood to be around £1.25 million (Dh7.2m)
"We have found the best solution for all involved," said Horst Heldt, Schalke director of sport.
"Lewis had hinted to us that he would not be against moving immediately and Schalke have received a decent sum for a player whose contract was due to expire in five months.
"We wish Lewis all the best for the future."