According to Sport Mediaset, Falcao has been deemed unapproachable thus Liverpool have decided to focus on Balotelli, and are preparing a bid of €22 million.
It is thought that Liverpool manager Brendan Rodgers wants to add a striker to his squad before the transfer window ends.
Balotelli joined Milan in January 2012 for €22m from Manchester City, and could be returning to England for the same fee just a season and a half afterwards.