Speculation over the last few days has linked the 22-year-old with a switch to the Rossoneri, who are believed to have held a series of discussions with City regarding a transfer fee.
An agreement from those discussions now appears to have been reached, with Balotelli said to be preparing to fly to Milan tomorrow for a medical examination.
Should the Italian international pass those tests, he will sign a contract at the San Siro until the summer of 2017.
"Transfer agreement for Balotelli signed with Manchester City. Medicals tomorrow in Milan, then personal terms until 2017 signing," Milan director Umberto Gandini wrote on Twitter.
Balotelli joined Premier League champions City in 2010 from AC's city rivals Inter Milan. However, despite his allegiance to Inter, it is believed that he grew up supporting the Red and Blacks.