The 31-year-old forward has also fallen out of favour with Barcelona manager Tito Vilanova, who has used the likes of Pedro, Alexis Sanchez and Cristian Tello in attack this season.
Italian title holders Juventus are monitoring the situation, in the belief that Villa could be available in a cut-price deal at the end of the season.
However, City could strike in January if relations between Balotelli and manager Roberto Mancini show no sign of improving.