Sky Sports News understands Chelsea have agreed a deal with Carlo Ancelotti following talks with the Milan coach's representatives.
Chelsea are homing in on their new manager after sacking Avram Grant less than two weeks ago after just eight months in charge.
The Premier League runners-up are understood to have narrowed down their short list for the job to two names.
Blackburn Rovers manager Mark Hughes, who is also interesting Manchester City, is one of the Blues' targets to replace Grant.
The other contender is an overseas coach and Chelsea have made a renewed attempt to prise Ancelotti away from the San Siro.
Milan vice-president Adriano Galliani revealed at the weekend that the club had turned down Chelsea's request to hold talks with Ancelotti.
However, Sky Sports News understands that the Blues have met with the Italian's representatives and agreed terms over taking charge at Stamford Bridge.
A deal with Milan is still to be reached and the concerted push to appoint Ancelotti looks likely to lead to Hughes joining City.
Sven Goran Eriksson, Frank Rijkaard, Guus Hiddink, Luiz Felipe Scolari and Roberto Mancini are among the names to have been linked with the Chelsea position, but it now appears owner Roman Abramovich has settled on Ancelotti.