The 22-year-old attacking midfielder is poised to put pen to paper on a three-year deal at San Siro after struggling to make his mark at Hamburg over a two-year period - despite the Italian club's recent UEFA sanction for breaking Financial Fair Play rules.
Milan were banned from participating in European competitions next season after failing to meet the break-even requirement, and while they are appealing the ruling they have seemingly secured Halilovic on a permanent deal, so long as he successfully completes his medical examinations - as per Gianluca Di Marzio.
Halilovic's arrival reportedly comes as part of the club's plan B strategy in the transfer window due to their inability to offer European football, where he will join both Ivan Strinic and Pepe Reina at the club following their arrival on free transfers.
The 22-year-old joined Los Palmas on an 18-month loan spell just six months following his move to Hamburg from Barcelona in 2016, where he made 20 appearances in La Liga last season - scoring two and providing one assist.
The Croatian was tipped as one of football's young emerging talents during his time with Barcelona and Milan will hope to buck the recent trend and extract the most of his talent in the years to come.
The midfielder was linked with a move to Udinese and Sampdoria but after swift negotiations he is set to earn €1.8m per year with the Serie A outfit, with the final fee between the two clubs yet to be announced.
In other news, Milan remains hopeful of signing Dani Ceballos from Real Madrid as they continue to look for further additions to bolster their midfield ranks next season.