City remain in talks with Milan and their Serie A rivals Juventus over a deal for the Italy striker but have so far refused to drop their asking price.
Valentina Fass of Sky Italia told Sky Sports News: "They have found an agreement on Balotelli's salary.
"He was due to get 5m euros net a year plus bonuses, but the problem is the transfer fee. City want a higher amount while AC Milan doesn't want to give more than 20m euros.
"They're trying to discuss details and are very close to closing the deal, so it really looks like Balotelli will be coming to Milan.
"It's even more likely now because Balotelli has offered to reduce his salary to 4m euros a year. This will probably mean they'll be able to close the deal because the difference between what City want and what Milan want to give is 2-3m euros.
"It looks like Mario himself is trying to make the deal happen."