Chelsea's pursuit of a new manager is underway after last week's sacking of Liam Rosenior.
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Blues management have decided to appoint Calum McFarlane as caretaker manager to the end of the season, so they can take their time in finding the right replacement.
The Sun says contact has been established with Xabi, who is available after his dismissal by Real Madrid earlier this year.
The former Bayer Leverkusen coach isn't Chelsea's only choice, but talks have now kicked off with Xabi's agents about the prospect of taking charge at Stamford Bridge.