The Germany international suggested after toasting victory in the World Cup final on Sunday that a deal to take him to Santiago Bernabeu was already done and that he was all set to make another ‘dream’ come true.
Bayern, though, are adamant that no agreement has been reached and that Kroos remains their player.
They are, however, prepared to admit that the highly-rated midfielder is likely to be moved on this summer, with Manchester United and Chelsea also reported to be keen.
Chief executive Karl-Heinz Rummenigge said: “Nothing is official yet, however he could be sold for a certain fee.
“I can confirm that Toni and us are in talks with Real Madrid.”
Bayern have reluctantly agreed to enter into negotiations as Kroos has entered the final year of his contract at the Allianz Arena and has turned down the offer of fresh terms.
Rummenigge added: “It is clear we do not want to lose the player for free next year. We have a financial responsibility towards our club.
“Let me put it this way, we were not able to achieve (a renewal). And then you can’t exclude a transfer after the World Cup.
“It is possible this will happen.”