Newcastle alerted as Dunne rejects Man City offer
Sven Goran Eriksson was confident his skipper and defensive stalwart would commit his future to the club when negotiations began last month.
But Dunne is unhappy with City's offer and talks between his advisers and the club have broken down.
The Republic of Ireland international has clocked up nearly 300 appearances in seven years with City and is determined not to sell himself short in the negotiations over his future.
Newcastle United considered moving for him in the summer and one of the priorities for their new manager will be to sign a centre-half.