It is thought the Etihad Stadium outfit are willing to pay Pellegrini's four million euro release clause to lure the Chilean away from Spain following a season in which has led Malaga toย the UEFA Champions League quarter-finals this season.
The speculation comes as Mancini, who has already guided City to a Premier League title and an FA Cup triumph, prepares his side to face Wigan in Saturday's FA Cup final, which is now the club's only chance for silverware after rivals Manchester United regained the league crown.
On Friday Mancini stressed he was under no illusions as to the ruthlessness of football management, hinting that he would not be shocked if he were to lose his job.
He said: "I won seven trophies in Inter in four years and they sack me after four years (in 2008). This is football. I know football enough to understand this situation."
The Italian's words now look to have been a forecast of his downfall, with the former Inter boss widely expected to leave City even if he does deliver their third trophy in as many seasons.

Initial rumours of Mancini's impeding departure and Pellegrini's arrival came after Spanish pundit Guillem Balague declared City had reached an agreement to convince the former Real Madrid manager to trade La Liga for the English top flight.

Pellegrini joined Malaga in November 2010 and has turned them into a relatively strong European force despite well-documented financial problems and the loss of several key players during his tenure.