The 'Home Alone' star - who became friends with Michael in 1990, when he was just 10 years old - reportedly donated sperm to create Prince Michael II, known as Blanket.
The sperm was then inserted into an unknown surrogate mother, and Blanket was born in 2002, when Macaulay was 22 years old.
An insider told Britain's Sun newspaper: "It is well known Jackson and Macaulay shared a unique bond.
"Now rumours are spreading like wildfire that Macaulay, who Jackson nicknamed Mack, is actually Blanket's biological dad."
Michael and Macaulay were close friends for years. The child star frequently visited the singer's Neverland ranch - where he raised eyebrows by sleeping in Michael's bed - and took the witness stand to defend him during his 2005 trial for child molestation.
Michael is said to have idolised Macaulay, and thought using his sperm to create a child would be the "next best thing" to being Macaulay's father.
The source added: "This isn't just chitter-chatter, even Culkin suspects he's Blanket's father. So many names have been mentioned as prospective dads, and this is probably the wackiest yet.
"But Jackson and Culkin were best friends. He was one of the few people Jackson really trusted and Mack never let him down. Really, Jackson idolised him - that's why he asked Mack to donate sperm.
"Deep down, I think he always wished Mack was his son. Creating Blanket was the next best thing."
Friends claim Michael - who died in June - was not the biological father of his other children Prince Michael I, 12, and Paris, 11.
'Oliver' star Mark Lester and Dr Arnold Klein have both claimed they are the father of the children after donating sperm to Michael in the 1990s.
Macaulay has not commented on the paternity rumours.
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