The Manchester United boss has major concerns about the long-term fitness of Owen Hargreaves and needs a dynamic holding midfielder.
The Tottenham star has impressed during his 18 months at White Hart Lane and played a key role in helping Harry Redknapp's side qualify for the Champions League.
But the Honduras international has never disguised his ambition to play for one of the established top-four clubs after making his name at Wigan and Spurs following a short loan spell at Birmingham three years ago.
Palacios, 26, would cost around £16million and Spurs would hold out for their asking price as he has four years left on his current contract.
It is thought that the deal is loaded with clauses that allow him to speak to other clubs if they offer more than a fixed sum - believed to be in the region of £15m.
Fergie also has doubts over the suitability of Michael Carrick to the defensive midfield position if United are to continue challenging for the Premier League title and Champions League in seasons to come.
The United boss was interested in signing Palacios before he made his £12m switch to Tottenham in January 2009. He also attracted scouts from Real Madrid and Bayern Munich during his time at Wigan.
Another player who remains in Fergie's sights is Karim Benzema.
The Real Madrid striker has failed to impress new manager Jose Mourinho and endured a disappointing debut season at the Bernabeu last term.
But Fergie believes Benzema, who cost Real over £30m from Lyon, would provide a creative spark for his side which is still over-reliant on Wayne Rooney.
Real are prepared to let the France international leave for around half what they paid for him last summer and would prefer him to join a club outside Spain.
united should go get daniele rossi from roma instead of palacios.
Originally posted by Rooney9:united should go get daniele rossi from roma instead of palacios.
I thought United needed a creative centre midfielder instead of splashing the cash on defensive ones. There's Fletcher and to a certain extent, Anderson to cover and of course the "new signing" Owen Hargreaves.