Real Madrid directors have been impressed by the 18-year-old striker, who is now a regular at Inter after pushing Argentine ace Hernan Crespo into the stands.
It is believed the Spanish side will make an early £14m bid for Balotelli before his price-tag rises further.
Balotelli has publicly told he wants a new contract with Inter, due to his current low wage at San Siro, or he is prepared to leave the club.
