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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.



Source:Skysports

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AC Milan coach Carlo Ancelotti, who has been linked with the vacant Chelsea job, says he wants to remain in charge of the Serie A side.

Over the weekend, Milan vice-president Adriano Galliani claimed his club had turned down a request from Chelsea to hold talks with Ancelotti.

"I'm staying at AC Milan for sure, and for many seasons to come," said the 48-year-old Ancelotti in a statement.

Despite Galliani's claim, Chelsea have denied asking to speak to Ancelotti.

"Chelsea has not reached agreement with any individual to become manager," said the Premier League club, who are searching for a successor to Avram Grant.

"Nor have we sought permission from any organisation to talk to their manager."

On Saturday, Galliani had told the Milan website: "(Chelsea) asked for our permission and naturally everything stopped there.

"He and another Italian coach were at the top of Chelsea's list."

Chelsea's statement on Tuesday followed reports the club had reached an agreement with Ancelotti's representatives to succeed Grant as manager.

Chelsea sacked Grant on 24 May, three days after the club's Champions League final defeat on penalties to Manchester United, but the Blues issued an upbeat update on the search for a new manager.

"We're extremely happy with how our search is progressing."

Ancelotti led Milan to the Champions League in 2003 and 2007 and Serie A in 2004 after joining them in 2001 from Juventus.

As a player, he helped the Rossoneri to two Serie A titles and two European Cups, and he is one of five men to have won the Champions League as both a player and a coach.

In 2007, he signed two-year contract extension to keep him at Milan until 2010.

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