The Citizens have made an enquiry to Madrid about Isco.
Following the £63m signing of James Rodriguez on Tuesday, Manchester City are hoping to capitalise and sign Isco from the Estadio Santiago Bernabeu, reports the Independent.
Competition in midfield at Los Blancos has suddenly become extremely fierce with the arrival of Toni Kroos and Rodriguez in the space of a week and many of the current stars are fearing for their position.
One of those is Isco, who only joined Madrid from Malaga 12 months ago and has failed to truly establish himself in the Spanish capital since then.
The 22-year-old plays in the same position as Rodriguez and therefore could be tempted by a move away from Los Merengues in order to obtain more first team football.
City would be an attractive prospect for the attacking midfielder as well, with the Premier League champions coming close to signing the Spaniard in 2013.
Isco knows Citizens manager Manuel Pellegrini well from their time spent together at Malaga and the Spanish ace is seen as ideal cover for the injured Alvaro Negredo – who is out for three months with a broken metatarsal.
However, Pellergini will face competition from another English club, with Liverpool also interested in the services of the Madrid man and according to the Daily Star are prepared to launch a £25m bid to secure him.