The 35 year-old fullback is off contract in June.
"Don't stop playing. Stay with us for the next year," Ancelotti said of Baines.
"We would like to keep him and are going to talk with him. It would be good for us if he can stay.
"Physically, he has no problem. It depends on what he is thinking and whether he wants to continue.
"I think he wants to continue but it is his decision."