Lawyers for both parties are drawing up an official agreement, and once that is completed Hughes will be allowed to speak to City about succeeding Sven Goran Eriksson.
However, Hughes - who took over at Blackburn in 2004 - is not yet believed to have held talks with City owner Thaksin Shinawatra.
Meanwhile, City have confirmed that Hans Backe and Tord Grip have left their posts as assistant manager and first-team coach, respectively, in the wake of Eriksson's departure.
Chief executive Alistair Mackintosh told City's official website: "Both Hans and Tord made a positive impact on those involved with Manchester City over the course of the season.
"We thank them for their contribution and wish them every success in the future."