Tevez has not played for City since September when he refused to warm-up during their Champions League game at Bayern Munich and has faced internal disciplinary action with Roberto Mancini, the manager, saying he saw no way back for the player.
A move away from the club in the January transfer window is widely expected and Italian media have reported Milan would prefer an initial loan deal with an option to buy. That would not sit well with City, who want a permanent deal and would be unwilling to accept anything below the market price for the Argentina international, the sources told Reuters.
Neither AC Milan nor City have commented on the matter.
The Tevez issue hung above Mancini's news conference yesterday despite the Italian's best efforts to bat it away as his team seek to put Tuesday's Champions League setback behind them by continuing their domestic charge.
Mancini, who has faced weeks of questions about the future of the striker, who is in Argentina without City's permission, shook his head when the subject was raised again. "I don't want to speak about Carlos, sorry," he said.
The manager was instead keen to shift the focus to on-field matters as the Premier League leaders prepare to keep up their dazzling domestic form when they visit Liverpool tomorrow.
They need to beat Bayern Munich in their final group game next month and hope Napoli fail to win against Villarreal, who have yet to pick up a point.
Asked about his team's chances of qualifying, Mancini said: "I believe if Villarreal play a good game they can beat Naples or they can do a draw but it clearly now depends on the other teams.
But he added that his side were not yet good enough to win Europe's elite club competition.
"We should be realistic," he said. "I do not think we have a team to win the Champions League this season. Real Madrid, Bayern Munich, Barcelona and Inter Milan all have more experience than us."
Elsewhere, Sir Alex Ferguson has ruled out the possibility of strengthening Manchester United's midfield during the January transfer window despite ruling Anderson out until February with a knee injury.
The Brazilian is to see a specialist in Portugal for further assessment on the problem. He saw the same specialist two years ago following surgery for cruciate ligament damage.
Ferguson is already without fellow midfielder Tom Cleverley, who is battling an ankle injury.
"It is dead easy to say you are going to buy a player but it is not easy to buy players for Manchester United, particularly in January," he said.
"I don't see anyone who could make us a better team from the ones who are possibly available."