Reports in Italy from Corriere Dello Sport claim that Ancelotti has agreed a four-year deal that will see him earn around £35 million over the course of his contract.
Ancelotti has been out of work following his departure from Bayern Munich earlier this season.
Since leaving the Bavarian outfit he has been linked with moves back to Chelsea and Milan.
Ancelotti has previously confirmed that he would wait until the summer before deciding on his next move.
Wenger’s current contract at the Emirates is up at the end of next season after he signed a new two-year deal on the back of beating Chelsea in the FA Cup final last year.
However, it has been reported that Wenger has the option to review his position at the end of the season, with some suggesting he could leave this summer.