The 28-year-old is out of contract at the Emirates in the summer and has refused to pen new terms as he eyes more lucrative prospects elsewhere.
City almost completed a deal for Sanchez last summer, only for the transfer to fall through at the last moment due to the Gunners' inability to secure a replacement for the Chilean.
The Premier League leaders had been expected to move again for him in January - albeit for a much-reduced price - but are now expected to make a significant offer in order to thwart competition from the likes of Real Madrid and Paris Saint-Germain.
According to The Telegraph, Arsenal are still adamant that they will need to secure a replacement before selling Sanchez to City and will require a fee "in excess of £50m" in order for the deal to happen.
Sanchez is understood to be demanding wages of around £300,000 a week from any club interested in his services.