Isco was reduced to a bit-part role during Zinedine Zidane's final two seasons in charge, leaving him open to a potential exit from the Bernabeu.
While the arrival of Carlo Ancelotti could boost the playmaker's chances of first-team football, Real officials are keen to get the 29-year-old off their wage bill.
With Isco having less than a year remaining on his contract, Calciomercato claims that Los Blancos are ready to demand in the region of £21m.
Despite holding an interest in the player, AC Milan are unlikely to press forward with an official approach unless Real lower their valuation.
Isco made just eight starts in La Liga last season with a further 17 outings coming from the substitutes' bench. body check tags ::