The 19-year-old has been identified as the Eagles’ top choice to replace Aaron Wan-Bissaka for next season after the right-back was sold to Manchester United, according to the Sun.
However, the Stamford Bridge club are reluctant to make a decision on the defender’s future until they hear news about their two-window transfer ban.
James spent last season on loan at Wigan in the Championship before joining England Under-20s' squad at the Toulon Tournament this summer.
He picked up an ankle injury against Chile on international duty and is expected to return to fitness by the end of August.
Palace are willing to take the teenager to Selhurst Park either on loan or in a permanent deal, but Chelsea won’t let him go until they know where they stand with their appeal to the Court of Arbitration for Sport against the FIFA-imposed ban.
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