Brazil have been looking for a successor for Tite, who left the job after being beaten by Croatia in the quarterfinals of the Qatar World Cup in December.
The experienced Ancelotti -- who has been in charge of Real Madrid since 2021 -- has coached clubs such as Juventus, AC Milan, Chelsea, Paris Saint-Germain and Bayern Munich in a 28-year managerial career.
Sources told ESPN Brazil reporter Bruno Vicari that the Italian has given the green light to taking over Brazil, in what would be his first international appointment, this summer.
No formal agreement has been reached, sources said, but Ancelotti had responded positively to the CBF's interest.
"The Brazilian Football Confederation (CBF) states that the news released this Friday that the coach of Real Madrid, the Italian Carlo Ancelotti, is the new coach of the Brazil national team is unfounded," the CBF said in a statement.
"President Ednaldo Rodrigues stands by the statements given on Wednesday, after the draw for the matches in the Copa do Brasil. At the time, the president ruled out speculation, saying that the matter will be dealt with transparently and that the coach chosen will be announced at the right time."
Ancelotti coached Madrid to a Champions League and LaLiga double last season, with the team currently second in the league -- eight points behind leaders Barcelona -- and set to play Al Hilal in the Club World Cup final on Saturday.
Multiple sources have told ESPN that Ancelotti is the main candidate to replace Tite.
However sources close to the coach have insisted that he is happy at Madrid, where his contract is due to run until 2024.
Sources at Real Madrid told ESPN that the club are not aware of any plans for the manager to leave this summer.
"No, I'm not aware of these things," Ancelotti said on Friday, when asked about being linked to the Brazil job. "The situation is quite clear. I have a contract until 2024."
Turning his focus to the Club World Cup final, Ancelotti said that victory could be a catalyst for the remainder of Real Madrid's season.
"It's an important moment at this stage of the season," he said. "When you get to February or March, it's the decisive moment of the season and we're here as always. We're looking good, and we start with a Club World Cup final."
The LaLiga champions lost 3-1 to Barca in their last final, the Spanish Supercopa on Jan. 15, and were beaten 1-0 by Mallorca last Saturday.
"This final can give us a boost for the rest of the season," Ancelotti said. "It can give us more confidence in the games coming up. The team is already confident but the loss against Barcelona in the Supercopa and the loss against Mallorca hurt us. We believe this can be a great season like last season, I'm convinced."