He could face a choice between the Italy job and signing a new contract with the Premier League winners.
Mancini, who guided the Blues to the Premier League title last season, has yet to commit to a new deal at the Etihad Stadium, despite opening talks with the club's owners in Abu Dhabi last month over an extension to his contract, which is due to expire in 12 months.
The 47 year-old had been handed the opportunity to begin negotiations to extend his City contract last December, but instead asked the club to wait until the summer in order to avoid distractions during the second half of the campaign.
The future of former Fiorentina coach Prandelli has been the subject of ongoing speculation in Italy due to suggestions that he is keen to return to club management.
Prandelli, 54, is understood to be frustrated with the role of coaching at international level and, with Italy starting their Group C campaign against Spain in Gdansk on Sunday, sources in Italy have claimed that a poor tournament could see Prandelli and the Italian Football Federation part ways this summer.
Last month, Prandelli attempted to end the rumours of his discontent and dismissed intentions of leaving Italy.
"I have a contract with the Federation until 2014 and intend to respect it.I really want to go forward, even though I know very well that all the coaches, even the national team, are tied to results," The Telegraph quoted Prandelli, as saying.
Mancini's success at City, following three Italian titles with Inter Milan, has earned him the admiration of senior figures within the Italian Football Federation and it is understood that he has been earmarked as first choice to replace Prandelli, if Italy fails to deliver in Poland and Ukraine. (ANI )