Carlo Ancelotti on the brink at Chelsea

Chelsea manager set to walk out after break down in relationship with Abramovich

Carlo Ancelotti was last night understood to be considering his future as Chelsea manager after his rift widened with the club's hierarchy over the weekend.

Ancelotti's relationship with the club and owner Roman Abramovich has deteriorated in the last two weeks and Saturday's 1-0 defeat at Birmingham – their third in four Premier League games – prompted the Italian to state publicly for the first time that his power at the club is severely limited.

Ancelotti's future was the talk of the League Managers' Association dinner in London last night and there was expected to be some kind of clarification about his future this morning. A Chelsea spokesman dismissed the story that Ancelotti was about to walk away and as it stands he is still due to give a press conference today to preview tomorrow's Champions League game against MSK Zilina.

Key to his decision has been the treatment of Ray Wilkins, his erstwhile assistant who has been forced to take legal action through the LMA in order to get compensation following his dismissal. Despite having won the Premier League and FA Cup Double in his first season at Stamford Bridge, Ancelotti has been undermined by the sacking of Wilkins this month and the appointment of the relatively unknown Michael Emenalo in his place.

Asked on Saturday at St Andrew's about his position at the club, Ancelotti made no secret of the fact that he does not wield as much power as some of his peers in the Premier League.

"It is a different position to Ferguson because he has total control of the team," he said, referring to Sir Alex Ferguson at Manchester United. "I have just the technical direction, full stop, okay."

Asked if he was prepared to put up with the problems he was encountering, Ancelotti replied: "Yes, I am. This is the life of the coach. This is a difficult moment but I think we are capable of moving on. It's true we didn't play well against Sunderland but here we played very well. Everyone who saw the game can say this. When the team don't win there is more responsibility on the coach, but this is normal. This is my job. I don't have a problem."

Should Ancelotti come to an agreement with Abramovich that would allow him to leave it would mean that the club had no obvious alternative to turn to as a caretaker manager. They would be looking for their fifth manager since Jose Mourinho departed in September 2007, with all bar Guus Hiddink who only signed a short-term contract having fallen foul of the Chelsea owner.

Bookmakers last night stopped taking bets on Ancelotti becoming the next Premier League manager to lose his job. In spite of all his success in his debut season with Chelsea, Abramovich's dissatisfaction with him relates to the manner in which his side were eliminated by Mourinho's Internazionale from the Champions League.

The situation has become critical enough for those close to the italian to anticipate that he will have to make a decision on his future either way this morning.