The striker's agent, Mino Raiola, alerted the Blues to his client's availability and they are weighing up their options for a potential summer bid.
Balotelli is increasingly unhappy at San Siro following a nightmare first half of the season which has left the Rossoneri in 13th place in Serie A, 27 points behind leader Juventus.
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AC Milan's terrible domestic season so far is pushing Balotelli closer to the exit door.
However, this scenario seems very unlikely to be played out in January, for many reasons. First of all, Balotelli's market value is currently pretty low and AC Milan is not able to ask for more than 25-30 million euros.
Also, AC Milan and Chelsea are both in the Champions League, so a possible move during the winter transfer window would end Balotelli's season in Europe.
It is true that president Silvio Berlusconi does not like the forward and his behavior but he is also aware that the player should be kept at least until after the World Cup. If he performs well in Brazil, he would demand a higher fee and AC Milan could try to engineer a possible Gareth Bale-like transfer.
The striker's agent, Mino Raiola, has alerted clubs to his client's situation as they explore the player's options - and Chelsea manager Jose Mourinho, keen on bolstering his striker options during January, has asked to be kept informed of the situation.
The Blues were keen on making a move for Wayne Rooney during the summer only to be met with resistance from Manchester United, while they have also been linked with a move for Napoli's Gonzalo Higuain in recent days - though Mourinho played down talk of a deal for the Argentine to reporters on Friday.
And despite claims of a falling out between Mourinho and Balotelli during their time at Inter, the Portuguese remains a big fan of the Italy international.
The Blues will likely have to sell to buy this winter given their 59 million euro loss over the most recent financial year but could be tempted into a move should they sell either, or both, of David Luiz and Juan Mata.
However, despite Balotelli's unhappiness and some ill-feeling towards the Italy international among the club's board, a January move appears unlikely.
Milan president Silvio Berlusconi has never been enamoured by Balotelli's behavior and would sanction a sale, a decision driven at least in part by the delicate political situation at the Giuseppe Meazza following the appointment of Berlusconi's daughter, Barbara, to the club's board.
Adriano Galliani, who looked set to step down as CEO at the end of November before performing a U-turn and agreeing to share general manager duties with Babara Berlusconi, was responsible for bringing the 23-year-old to Italy 12 months ago.
Galliani's power at Milan is at an all-time low, however, and the Berlusconis are pushing for a sale in the right conditions.
But such conditions appear unlikely in the coming weeks. Balotelli is the biggest star in the Milan ranks and the club would want a mammoth transfer fee for the Italy striker.
Given his below-par displays this season, however, Milan would be unable to demand anything more than 25-30 million euros for his services at this moment in time and any sale for that amount would likely cause uproar among an already dissatisfied fanbase.
As such, the club is prepared to wait until after the World Cup in the hope that Balotelli impresses for his country in a bid to drive up the asking price.