Speculation in Italy had suggested Milan were prepared to pay around £20million plus add-ons -- and it is believed they have upped their offer to £22m in this week's discussions.
Whether City will be willing to compromise and accept this figure ahead of Thursday's transfer deadline remains to be seen.
Balotelli cost £24m when he signed from Inter Milan in August 2010.
Contrary to some reports, Balotelli did travel with the City squad to London for today's Premier League game at QPR.
The forward was set to play having overcome the virus which kept him out of Saturday's FA Cup fourth-round win at Stoke.
Balotelli's future has been a matter of uncertainty since a below-par display in the derby defeat by Manchester United on December 9.
He has not started a game for the club since, first after being dropped and then because of a spell out through illness.
There have been two substitute appearances in January, but he has long been fourth-choice striker behind Sergio Aguero, Carlos Tevez and Edin Dzeko.
Balotelli's campaign as a whole has been an underwhelming one with just three goals, only one in the Premier League, to his name.
There had been fewer of the off-field controversies which blighted his first two seasons at City this term, but then came a high-profile training-ground bust-up with Mancini earlier this month.
Yet even as many observers were claiming that incident must be the final straw for Mancini, the fiercely loyal manager himself said he was prepared to give him "another 100 chances".
Mancini has also stated repeatedly that Balotelli will not be leaving that club and pointed out that, with three years left on his contract, his former Inter protege remains a big part of his plans.
But that did not quell persistent rumours from Italy suggesting that Milan would make a move, nor did conflicting statements from senior figures at the San Siro.
Milan president Silvio Berlusconi has been quoted describing Balotelli as a "rotten apple" and that the club cannot pay "Monopoly money" for him. Chief executive Adriano Galliani has also made regular statements about the player.
Whether or not Balotelli plays, the matter was set to be raised in the aftermath of today's game at Loftus Road as the transfer window enters its final 48 hours.
One important player who will not feature against the bottom side is captain Vincent Kompany, who limped off with a calf strain in the first half at the Britannia Stadium.
Kompany is also doubtful for Sunday's home clash with Liverpool and, with the defender having been troubled by similar injuries in the past, assistant boss David Platt admits he is a worry.
Platt said: "It is a concern that it's not a fresh injury.
"The calf is the strangest muscle -- there is probably more recurrence than with hamstrings, groins and things like that.
"And it has happened on a couple of occasions, but the concern is to make sure we clear the problem and that is what we will be working through."
City, short on defensive options with Kolo Toure at the African Nations Cup, are hoping Matija Nastasic can overcome a minor knee problem to return alongside Joleon Lescott.
Alternatives include 18-year-old Karim Rekik, midfielders Javi Garcia and Jack Rodwell, or playing a three-man defence.
With leaders Manchester United not in action until tomorrow, City can apply pressure to their rivals by cutting their lead at the top of the table to two points with victory over Harry Redknapp's QPR.