The Ghana international has struggled for playing time this campaign, having made only four league appearances - three of which have been substitute outings.
Comparatively, he played 24 times and scored once as the Foxes won the topflight last season.
"I spoke with him, he spoke with the club – he's not happy," Ranieri said at a media conference, as reported by FourFourTwo, ahead of Saturday's Premier League clash with Chelsea.
"Jeff is a fantastic man and a fantastic player. I said if he wanted to leave, he can go, but after that, there is the money for the club. If the right amount of money arrives, he can go.
"We spoke and that is normal. There are some clubs interested.
"He has great potential. I am very sad to lose him, but I have three very good left players; Ben Chilwell, Christian Fuchs and Schlupp.
"I would like to keep an experienced player and one young player. Jeff played so few times it is not right.
"He deserves to play and deserves to show his potential."
Schlupp joined Leicester’s academy at the age of 12, making his way through the ranks before earning his league debut against Reading in the 2011-12 English Championship.
Leicester have reportedly turned down a £9 million bid from Crystal Palace for the 24-year-old, with West Brom and Aston Villa also said to be interested.
The German-born's inactivity this season has also had repercussions on his international career, having been snubbed by Ghana coach Avram Grant for the 2017 Africa Cup of Nations, which kicks off on Saturday.