According to The People, Ancelotti is keen to reunite with Kaka after enjoying a successful stint together at AC Milan.
The Real Madrid playmaker is reportedly ready to quit the Spanish giants after claiming he might not fit into Jose Mourinho's tactical style of play.
Kaka's comments alerted Chelsea, who will be the first in the queue to pry the Brazilian from the Bernabeu with an offer of £50 million.
The only stumbling block Ancelotti could face is Mourinho demanding one of his former players in exchange for Kaka for the deal to materialize.
Chelsea have a massive gap in midfield to fill after Michael Ballack's departure from Stamford Bridge with Deco and Joe Cole looking all set to leave the club too.
The former Milan midfielder is currently nursing a World Cup heartbreak after Brazil were knocked out of the quarter-finals with a 2-1 defeat to Netherlands and with his Real Madrid future in doubt, a fresh challenge will be exactly what Kaka needs.
Ancelotti could also test Liverpool's resolve to keep star striker Fernando Torres, whose future at Anfield has been clouded after the departure of Spanish counterpart Rafael Benitez from the club.
Despite appointing Roy Hodgson as their new manager, Liverpool are still suffering from financial difficulties and could find a big offer for Torres too big a temptation to resist.