The future of Khedira - out of contract at the end of the 2014-15 season - has generated much speculation after Ancelotti confirmed mid-week the Germany international midfielder had decided against signing a new deal.
Talk intensified when Khedira was omitted from the squad to play city rivals Atletico Madrid, who triumphed 2-1 on aggregate on Friday.
Khedira was pictured in Germany on the day of the second leg, watching his brother Rani play for second-tier club RB Leipzig, leading to speculation he is on the verge of joining Bundesliga champions Bayern Munich.
Speaking post-game at the Vicente Calderon, Ancelotti said he had given Khedira his blessing to find a new home.
"Khedira had permission, I gave him permission to leave," the Italian boss told reporters.
"When a player is free I'm not interested in his whereabouts."
Bayern are on the lookout for a replacement for utility Javi Martinez, who was ruled out for the remainder of the year after suffering a cruciate ligament tear against Borussia Dortmund last week.
And Khedira's agent reportedly met with Bayern officials on Friday as the German giants attempt to lure the 27-year-old World Cup winner back home.
Meanwhile, Ancelotti insisted the UEFA Champions League winners will not be adding to their squad before the transfer window shuts on September 1.
Real have invested heavily in new recruits James Rodriguez (Monaco), Toni Kroos (Bayern Munich) and Keylor Navas (Levante).
That has not stopped reports linking Real with another raid on Ligue 1 side Monaco, this time for star striker Radamel Falcao in attempt to support Karim Benzema.
However, Ancelotti said he is happy with Benzema being his only recognised striker this season.
"The market is closed for us," he added.
"I'm very happy with Benzema, although he doesn't score in some games he brings a lot to the side."
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