Manchester City are ready to meet Isco s release clause of 21 million euros this January before loaning the playmaker back to Malaga.
According to Goal.com, City s new director of football Txiki Begiristain has learned Malaga are looking to extend the midfielder s contract at La Rosaleda.
Such a move would likely raise his buy-out clause to over 30 million pounds and the English Premier League champions are preparing to act fast to grab a bargain.
Roberto Mancini has been desperate to land the 20-year-old for several months, with the youngster proving pivotal to Malaga s outstanding form this season.
Manuel Pellegrini s side sit fourth in La Liga and are comfortably through to the Champions League knockout stages.
The Italian had hoped to bring Isco to Manchester in January, but would be willing to let him stay in Spain until the end of the season in order to keep the fee down as they continue to monitor Radamel Falcao and Stevan Jovetic.
Malaga are looking to make a healthy profit on the midfielder after paying Valencia 6.5 million pounds for his services in 2011.
The 20-year-old is a product of Valencia s youth team and has been highly recommended to City staff by David Silva, another star graduate of the Spanish club s academy.