Stadio Olimpico defender could be caught in a summer tug-of-war between Old Trafford and Emirates clubs.
Premier League Tickets Available from Tixdaq.com
Real Madrid are holding talks with defender Pepe over signing a new deal putting to bed rumours linking him with a move to Arsenal or Manchester United.
The 28-year-old is out of contract in June 2012 and could have been sold in the summer if he did not sign the extension.
But the Portugal international has been persuaded to open negotiations with the club he joined in 2007, making over 100 appearances so far.
Director general Jorge Valdano is optimistic over a deal being struck shortly.
“The negotiations with Pepe are going well,” he said. “He is an excellent person and one of the best central defenders in the world.
“It is true that we have been talking for some time, but I am confident that he will choose to stay on at Real Madrid.”
Pepe was linked with a move to Arsenal and Manchester United but this news means they will switch their attention to Roma defender Philippe Mexes.
The French international is out of contract at the end of the season and has stalled over a proposed move to AC Milan.
The Premier League title contenders will hope to pounce to sign the 28-year-old.