Real Madrid president Florentino Perez is planning a mass shake-up of his squad following a disappointing season in La Liga.
Los Blancos sit third in the table and crashed out of the Copa del Rey in the quarter-finals.
But Don Balon claim they are set to bolster their ranks with the addition of Thiago, who spent four years at the Nou Camp between 2009 and 2013.
GETTY
Thiago scored for Spain against Argentina last night
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Barcelona are said to have had first refusal, but even with the future of Andres Iniesta unclear, they still opted against making a move for the midfielder.
Thiago’s transfer to Real could spell the end of Isco’s career in the Spanish capital as he would fall further down the pecking order.
It would also strengthen the relations between Real and Bayern, with the Bundesliga club currently having James Rodriguez on loan.