The Real Madrid defender has made just 13 La Liga appearances under Zinedine Zidane this season that has led to speculation of his departure from the Bernabeu.
Pepe is out of contract at the end of the season and Madrid are yet to offer him a new deal.
The 34-year-old had the option to move to the Far East with Hebei China Fortune keen on taking him.
He was also said to be attracting interest from Paris Saint-Germain.
But Spanish publication Marca claim he has now decided on a move to Milan.
The report doesn’t specify which Milan team he wants to join but both clubs are set to battle for his signature.
Pepe, who has won two La Liga titles and two Champions League trophies with Madrid, could end the season with another European title when they take on Juventus in the final in Cardiff on June 3.