Carlo Ancelotti is reported to have agreed to leave Real Madrid and has emerged as favourite to take charge of AC Milan next season.
Napoli boss Rafa Benitez, meanwhile, is being strongly linked with the potential vacancy at the Bernabeu.
Ancelotti will take charge of Madrid's game at home to Getafe on Saturday but it is widely expected to be his final game following a season in which the club failed to win La Liga, the Champions League or the Copa del Rey.
Sky Sport Italia reported on Wednesday night that Ancelotti will hold a meeting with Real president Florentino Perez on Sunday and agree to terminate his contract, which has one year left to run.
The Italian channel suggested the former Chelsea and Paris Saint-Germain boss is considering a one-year sabbatical, but he has also been linked with a return to Milan.
La Gazzetta dello Sport has reported that Milan general manager Adriano Galliani has been in close contact with Ancelotti for several weeks, sounding him out about a return to the club he coached from 2001 to 2009 before joining Chelsea, winning a total of eight domestic and eight international trophies.
According to @Gazzetta_it, the next Real Madrid coach will be...Napoli's Rafa Benítez http://t.co/c8JX0VuiDm pic.twitter.com/pqskg8u1Gd
- AS English (@English_AS) May 21, 2015
Milan president Silvio Berlusconi has recently spoken of his renewed enthusiasm for his club and a determination to invest heavily in new players this summer as they face the prospect of a second season without European football. Berlusconi wants to build an all-Italian team, starting with the coach.
In November, Ancelotti had told La Repubblica that, if he were to return to his homeland, it would he would "only be coach of Milan."
However, Spanish newspaper El Pais has claimed Barcelona could make a shock move for Ancelotti if Luis Enrique leaves at the end of the season.
Luis Enrique has already won La Liga and could add the Champions League and Copa del Rey, but the coach is reported to have issues with the board as well as star player Lionel Messi, and sources on the club's sporting committee told El Pais that the Italian is an option.
Madrid, meanwhile, are reported to now view Benitez as the preferred candidate to replace Ancelotti.
Sources told ESPN FC last month that Benitez is set to leave Napoli at the end of the season, and the Spaniard -- who began his coaching career at Madrid -- is being touted as an option by several well-connected sources in Spain. Sky Sport Italia, meanwhile, has said there has been contact between the two parties and a deal could be close.
Elimination from the Europa League in the semifinal has diminished Napoli's faith in Benitez, while Napoli need to win their final two Serie A games to qualify for the Champions League. They travel to Juventus on Saturday before hosting Lazio on the final day of the season.
However, Benitez's achievements in Spain with Valencia, with whom he won the Primera Division twice and the UEFA Cup, have not been forgotten.
Since leaving Spain, he has added a Champions League, FA Cup and UEFA Super Cup with Liverpool, the Europa League with Chelsea, the World Club Cup with Inter Milan and a Coppa Italia with Napoli.