The 17-year-old left-winger's future at the Etihad Stadium has been put in further doubt after he was left out of Pep Guardiola's pre-season tour squad that traveled to the United States earlier this week.
City are desperate to hold on to the England Under-17 international and according to the Independent, they have offered him a deal worth around £30,000-a-week ($39,000), but he is yet to sign a new deal, which has seen him being left behind in England.
Arsenal and Spurs have been long time admirers of Sancho, who joined the City academy from Watford in 2015. Apart from the two London clubs, Bundesliga outfit Red Bull Leipzig are also said to be monitoring the situation with a view to a potential summer move.
Tottenham have already had one approach rebuffed when they tried to have him included in the deal, which took Kyle Walker to the Etihad earlier in the month. The Cityzens are adamant that Sancho will not be sold despite him entering the final-year of his academy contract. The report claims that City will be entitled to around £4m to £5m in compensation if he decides to jump ship to a rival.
Sancho is highly rated in England and was one of the stars as the England U17 side reached the finals in the European Championships earlier this summer. He also played a key role for the City youth setup last season, scoring 20 goals in 35 appearances in all competitions.
The former Watford youth team player is said to be concerned about his chances of making the breakthrough into the first team with City owing to the riches available to Guardiola, especially in attack. The left-winger has Raheem Sterling, Leroy Sane, David Silva and new addition Bernardo Silva to compete with and it is unlikely that he will get regular game time if he makes the step up this season.