The Manchester Evening News says after last season's breakthrough, City management have seen enough and are ready to deal in the youngster.
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O'Reilly played primarily at left-back last season under Pep Guardiola, though the manager sees his long-term position in midfield.
City are now preparing to offer O'Reilly a long-term deal to assure him of his place in the senior team's plans.
Speaking last season, Guardiola said: "He has arrived from the academy and is helping us a lot. I am more than grateful. He is taking his opportunity."