The Premier League side, who currently sit ninth in the standings following their 1-1 draw against title contenders Tottenham at Anfield on Sunday, are interested in signing the Fiorentina midfielder once the 2015-16 campaign has concluded.
The 28-year-old, who has 36 international caps for his country, has scored an impressive 14 goals and provided a further six assists in 31 appearances in all competitions for the Serie A outfit so far this season.
Meanwhile Balotelli, who the Reds splashed out £16m on from fellow Italian side AC Milan back in August 2014, has found the back of the net just four times in 28 games for the English top-flight club.
However the Italian has been on loan at former club Milan this season, where the 25-year-old striker has still only managed to score once in 15 league appearances at the San Siro this term.
The report suggests that Balotelli may have to take a pay cut to join Fiorentina this summer however, or for Liverpool to offer paying part of his salary, as they are currently unable to fund his £53,000-a-week wages.