The 21-year-old initially joined the club on loan from Borussia Dortmund in the summer and impressed early on in his Magpies career, with a winning goal against Crystal Palace being as highlight.
It was enough to persuade Benitez to part with £8million to bring his fellow Spaniard to the club on a permanent basis, signing a five-year-contract with the North East outfit.
However, since then his form has been on the decline and he has lost his place in the side to Jonjo Shelvey and Mo Diame, who have been key cogs in Newcastle's ascent up the table to 12th, seemingly ruling them out of any real relegation worries.
Merino was not even in the matchday squad for the weekend's 1-0 win over Huddersfield Town on Saturday.
The report claims Merino is unhappy and unsettled at the club and wants to return to his native Basque country for Bilbao, who are only allowed to sign players from that region as part of a club policy.
The same report states Newcastle would be willing to let him go for a £13.5 million fee.