Ancelotti was sacked by Bayern Munich in September after an indifferent start to the 2017-18 campaign.
The 58-year-old is still regarded as one of the best managers in European football, however, following spells at Juventus, AC Milan, Chelsea, Paris Saint-Germain, Real Madrid and Bayern over the last 18 years.
According to The Sun, Ancelotti cleared out his apartment in Germany last week, and the Italian will now move back to London as he eyes a return to Premier League management for the 2018-19 campaign.
The report claims that Chelsea, Tottenham Hotspur and Arsenal all appeal to Ancelotti, and he will watch developments closely at all three clubs upon his move to the English capital.
Ancelotti led Chelsea to the 2009-10 Premier League title and 2009-10 FA Cup during his two-year spell in England.