The People says City have stepped up their interest in taking Khedira from Real Madrid next summer in a £30million deal.
Real coach Carlo Ancelotti is a huge admirer of Khedira, who has been a key man for the Italian this season, and has urged president Florentino Perez to tie the German international down on a long-term deal.
Perez is also a huge fan of the player and is offering Khedira a further two years with an annual salary of £3m, around £900,000 more than his current agreement, but such is City's financial clout that they will be able to better what is on offer in Madrid.
Chelsea are also monitoring Khedira's situation although they have not yet followed up their initial interest.
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