Galatasaray were in the race to sign Denayer but sporting director Levent Nazifoglu revealed that City blocked the Belgium international returning to Istanbul.
Nazifoglu was quoted by Turkish-football.com as saying: “We have a Lion at Manchester City, the club blocked his return but we will try to sign him in January.”
Galatasaray will now have to wait until next summer if they are to bring Denayer back to Istanbul.
City boss Pep Guardiola did not have plans for Denayer in his team this season but the 22-year-old defender is considered a promising young talent which was why his parent club were reluctant to let him leave on a permanent deal.
Denayer made 28 appearances for Istanbul giants Galatasaray in all competitions last season and won the Turkish Cup in his debut season providing the assist for the winning goal in the final against arch rivals Fenerbahce.
The powerful defender has also won eight caps for the Belgium national team and was included in the Euro 2016 squad.