The 28-year-old, who scored 24 league goals last season, is out of contract next summer and wants to play for City manager Pep Guardiola.
Arsenal have rebuffed all approaches for Sanchez, and would like City's Raheem Sterling as part of any deal before Thursday's transfer deadline.
But Guardiola is understood to want the Chilean as a straight purchase.
England forward Sterling, 22, has featured in all three of City's games so far this season.
However he is not guaranteed a starting role at Etihad Stadium following the summer arrival of Bernardo Silva from Monaco.
Sanchez joined Arsenal from Barcelona - where he played under Guardiola - in 2014 for a fee of about £35m.
He was granted an extended summer break this year after playing for Chile in the Confederations Cup and made his first appearance of the season in Arsenal's 4-0 defeat at Liverpool on Sunday.
Earlier this month, Gunners boss Arsene Wenger said Sanchez would "respect" his decision to keep him for the last year of his deal and former Liverpool and England midfielder Danny Murphy says Arsenal cannot afford to lose him.
"If they let him go they're in a world of trouble. They're in a world of trouble anyway," Murphy said on Match of the Day 2.
"He worked hard enough [at Liverpool] but as the game went away from Arsenal you could see him getting frustrated.
"His body language wasn't good when he came off - in fact before he came off you could tell he was despondent."
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