The Italian giants are said to have initially targeted the 29-year-old during the summer transfer window when splashing out a large sum of cash to rebuild their flagging squad.
Milan were holding out for Arsenal ace Sanchez to join City, in turn freeing up Aguero to head to San Siro in a big-money deal, but the Gunners held firm by keeping hold of their star man.
According to The Sun, City still intend to sign the Chile international in the New Year and are hopeful of nabbing him from their Premier League rivals as early as January in a cut-price £25m move.
The same report suggests that Milan will then pounce for Aguero, hoping that their offer is enough to tempt the Citizens into selling midway through the campaign.
Sanchez, now into the final eight months of his Emirates Stadium deal, is also rumoured to be a target for Paris Saint-Germain.