The News of the World says Chelsea will happily smash the transfer record for a teenager, previously the £27.5m paid for Wayne Rooney, by coughing up £45 million, but allow Pato to stay in Italy until after the World Cup.
Ancelotti believes his former club will now do business after rejecting all of Chelsea's earlier approaches for the 19-year-old, tipped to be one of the world's best.
A Stamford Bridge insider said: "Ancelotti's so keen to capture Pato that he will pay a club record fee and still allow the kid to stay at Milan for another season. That tells you how highly he values him."
"That's why this deal could make all the difference. Milan get their money up front and keep his services for one more season and have plenty of time to scout a replacement.
"Chelsea are hoping it is the perfect deal both for them and for Milan."
Chelsea will double his wages to £100,000 a week to cement the deal.
He is currently on just over £50,000 a week at Milan - one of their lowest paid stars.