According to Sky Sports, the 15-year-old has agreed terms with City and will sign a five-year contract in March when he turns 16.
Arsenal and Liverpool had also shown interest in the young forward, who Madrid had been keen to keep at the Bernabeu.
It is thought City will pay an initial fee of just €200,000 for the Spaniard, although reports in Spain have claimed his move to the Etihad Stadium includes clauses which will allow him to move back to the Spanish capital in 2014 and 2015 for set amounts.
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