Berlusconi's family holding company Fininvest said it signed a memorandum with the Chinese consortium at a board meeting on Tuesday to "kick off in-depth negotiations." Fininvest gave no deadline but a source close to the matter told Reuters the talks would last one month and were non-binding.
"The Chinese are valuing the club at up to 750 million euros (592 million pounds), including debt," the source said.
Berlusconi, who has owned AC Milan for more than three decades, is looking to sell the club at one of the low points in its history that dates back to 1899.
Second only to Real Madrid in the list of winners of Europe's top club competition, AC Milan has failed to win any major silverware in the past five years and is lying a lowly seventh in Italy's Serie A top division.
The club, which reported a loss of 93.5 million euros last year, needs an injection of capital to fund its business and put it on a par with the top European clubs, many now bankrolled by Gulf and Asian owners.
But a deal to sell AC Milan is still far from certain as the 79-year-old four-time prime minister remains reluctant to loosen his grip over the club he calls "my Milan".
IN GOOD HANDS
Last year, talks with Thai businessman Bee Taechaubol to sell a majority stake foundered when Berlusconi changed his mind at the last minute, saying he did not want to sell more than 48 percent, a person who followed the talks said.
"How many times have we been here. Fininvest wants to sell but every time we think we're there Berlusconi says No," said a top banker familiar with the matter.
According to another source, Fininvest's talks with the Chinese consortium envisage an initial sale of 70 per cent. "The rest will be sold in the following 12 to 18 months," the source said.
Berlusconi rescued AC Milan from dire financial straits in 1986 and has poured in millions of euros, helping it to five European and eight Serie A titles since taking over.
In a video-message published on his Facebook page on Friday, Berlusconi said he had invested more than one billion euros in the club, including 152 million this past season.
He acknowledged that it had played dreadfully but said he "liked to leave Milan in good hands... preferably Italian ones".
Beijing is pushing hard to turn China into a football force by encouraging investment both at home and abroad.
Chinese investors agreed in December to pay $400 million for a stake in the group that owns football clubs including England's Manchester City and New York City FC, the country's most significant overseas investment in the game.
The consortium, led by China Media Capital (CMC) Holdings and CITIC Capital, took a stake of more than 13 percent in City Football Group.
Chinese property group Dalian Wanda last year bought a 20 percent stake in Champions' League finalists Atletico Madrid.
AC Milan's local rivals Inter are 70 percent owned by a group led by Indonesia's Erick Thohir.
($1 = 0.8784 euros)
(Additional reporting by Stephen Jewkes and Keith Weir; writing by Giulia Segreti; editing by Paola Arosio and David Clarke)
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