The Manchester Evening news states that the incoming manager Pepe Guardiola is still keen on Gundogan and is pushing the Citizens to complete the transfer.
Gundogan suffered a knee injury during training earlier this month and has been ruled out of Euro 2016 this summer. The Germany international is also expected to miss pre-season training and the opening weeks of next season.
Dortmund have delayed contract talks with Gundogan until he recovers from his latest injury.
“We will postpone the plans until he is more or less recovered,” the Dortmund chief Hans-Joachim Watzke told Kicker.
Gundogan has just over 12 months remaining on his current contract with Dortmund and looked set to make a switch to Manchester City before sustaining the injury.
Gundogan has seven assists and three goals in 40 appearances for Dortmund this season.