Aguero has fallen down the pecking order at Manchester City since the arrival of Gabriel Jesus last month.
The Argentina international was dropped in favour of Jesus for the 4-0 drubbing of West Ham on Wednesday.
It seems Aguero is no longer guaranteed a starting spot at City under Pep Guardiola.
Sergio Aguero has fallen out of favour at Manchester City
Real Madrid could be set to offload Karim Benzema to fund a swoop for Sergio Aguero
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And The Mirror claim Real Madrid are prepared to splash the cash to lure him back to Spain in the summer.
It is said Madrid are ready to offload Karim Benzema and Alvaro Morata to fund a summer swoop.
Madrid believe they now have a genuine chance of signing Aguero having been keen on him going back to his days at fierce rivals Atletico Madrid.
Sergio Aguero has a rocky relationship with Manchester City boss Pep Guardiola
Atletico themselves could be keen, particularly if they lose Antoine Griezmann to Manchester United, but Madrid are the frontrunners for Aguero's signature.
Despite the striker signing a new deal at City until 2020 recently, he could still be off at the end of the season.
Juventus and Paris Saint-Germain are also in the running for the 28-year-old.