Although no official decision has been announced, the move appears likely and is being justified on grounds of enhanced security.
Previous American ambassadors to the Holy See contacted by the National Catholic Reporter have said they are opposed to the plans.
Ambassador James Nicholson, who served as ambassador during the presidency of George W. Bush, said the proposed relocation would be a “massive downgrade” that would turn the embassy into “a stepchild of the embassy to Italy.”
Current U.S. Ambassador Ken Hackett said he saw “no diminishing in the importance of the relationship at all.”
“The relationship between the Vatican and the U.S. government hasn't been better than it is right now in quite a while," he said, especially under Pope Francis.
Israel, the United Kingdom and the Netherlands are the only other nations to have both embassies to the Holy See and to Italy on the same compound.
Although the Vatican understands the security concerns and will not protest the U.S. embassy's move, it is usually reluctant to allow such a relocation.
Under the 1929 Lateran Treaty between Italy and Vatican City, the Vatican has sovereign status and is entitled to foreign missions separate from Italy. The Vatican has closely guarded that sovereignty after losing the papal states to Italy at the end of the 19th century.