The Spain international is being squeezed out of Valdebebas, where he is at loggerheads with several senior players and coach Zinedine Zidane.
Isco's minders met with City officials earlier this month at a Madrid restaurant to discuss a summer move. However, the Carabao Cup winners won't get a free run at the former Malaga midfielder.
Diario Gol says United are also in contact, with intermediaries assuring Isco's representatives they will better any contract offer tabled by City. Mourinho is a huge fan of Isco and wants to bring him to Old Trafford - no matter the price.
Interestingly, before signing for Real, Isco and his father visited both United and City as he was preparing to leave Malaga five years ago.