Talks for a renewal between the Portuguese centre-back and Los Blancos has reportedly reached a roadblock due to disagreements over tenure, alerting the attentions of the Premier League giants.
Real Madrid have a number of injury worries going into Wednesday's Champions League fixture against Legia Warszawa.
Real Madrid's Pepe was hauled off due to a hamstring injury in the first half of the Los Blancos' 4-1 thrashing of Deportivo Alaves and is now expected to be ruled out for several weeks hence missing some of his side's crucial clashes over the next one month.
Real Madrid veteran Pepe is reportedly considering a switch to Premier League side Chelsea next summer after growing frustrated over contract renewal talks.
Real Madrid see the return of their global icon Cristiano Ronaldo as Zidane aims to make it three wins out of three as they host Osasuna.
Argentina under-20 striker Lautaro Martinez could join Real Madrid on loan this summer, according to reports.
Portugal coach Fernando Santos has named a total of three changes for his side's semi-final encounter with Wales. His opposite number Chris Coleman has made two enforced changes, as the Welsh look to defy odds and make it to the finals.
If there was a list of violent defenders drawn up, Pepe's name would be on top. But the Madrid defender disagrees with this notion.
Speaking before Real Madrid’s clash against Malaga, manager Zinedine Zidane revealed that defenders Pepe and Raphael Varane remain unavailable for the away fixture.
Gareth Bale remains unavailable for selection along with Pepe as Real Madrid look to earn three points against relegation threatened Granada.