Ancelotti figures prominently on Chelsea's short-list for their next permanent manager but, although he has been considering his long-term future, no definite agreement has been reached.
Much is still likely to depend upon whether Milan do qualify for the Champions League and Ancelotti is given money to reinvigorate the squad.
If they do again finish outside Serie A's top four, it is believed that Milan would be prepared to part company with the 49-year-old.
"Our plans are clear, we have to reach the Champions League," said Leonardo, the Milan technical director. "Concerning Carlo Ancelotti I think everything is extremely clear. The coach has a contract until 2010.
The relationship with Milan is public. Everyone knows how much
understanding there is between him and the club."
However, it is understood that Ancelotti simply has an option of extending his current contract by one year at the end of this season, meaning Chelsea could potentially secure his services without paying compensation.
Chelsea do not expect to make an announcement until the end of the season and there remains uncertainty over whether Ancelotti will ultimately want to leave the familiarity of a club at which he has spent most of the past 25 years.
Hiddink has ruled out staying beyond the summer but, after his success so far, he faces a pressure from supporters to either take the job full-time or continue combining the position with managing Russia.