The 40-year-old is set to be put in charge of United's promising youngsters, according to the report.
The ex Scotland international made his name at Celtic, scoring 126 goals in over 200 appearances before moving down to United to join up with Sir Alex Ferguson in 1987, where he played 471 games before departing in 1998, and the last few years have seen McClair impressing with the Red Devils' academy as director.
He accepted a high-profile role as performance director at the Scottish FA earlier in the year, and will begin his new job this summer, bringing to a close a relationship with United that took in 11 years as a player and 9 as a member of the back room staff.
The Telegraph says Butt is now set to come in for his former teammate at Old Trafford, as part of a restructuring of the academy that will see the 40-year-old named as academy head coach, and reporting directly to Louis van Gaal.
He has been working back at the club since March, having been involved in Ryan Giggs' brief spell as caretaker manager last season.