Thiago has rejected signing a new contract with Bayern Munich and the club are prepared to sell him for a fee of €30m in the coming weeks.
The midfielder wants to move to the Premier League and he has been heavily linked with a move to Liverpool this summer.
Liverpool have repeatedly played down their interest in the 29-year-old, but it has been claimed that the club remain keen, while Jurgen Klopp is a firm fan of the Spaniard.
But according to German magazine SportBild, Manchester City could insert themselves into the mix to land Thiago, nipping in ahead of Liverpool.
Pep Guardiola signed Thiago at the start of his Bayern Munich reign in the summer of 2013 and remains a fan of the Spanish midfielder.
Guardiola is set to spend ahead of the start of the new season and Manchester City are claimed to be potential entrants into the race for Thiago.
Liverpool are unwilling to match Bayern Munich’s €30m asking price and have been holding out hope that the figure will come down as the transfer window rolls on, as Thiago is in the final year of his contract.
The Reds are reluctant to spend a big sum on a 29-year-old.