The Catalan giants were believed to have a summer bid rejected by the Rossoneri, who were adamant they do not wish to sell the Brazil international.
But according to The Daily Mirror, English giants City are set to test Milan's resolve in January with a mega bid for the 27-year-old.
Thiago has been a mainstay and key player in the Milan defence over the past few seasons, and has played nearly a hundred games for his side over three seasons.
He joined Milan from Fluminense in 2008 for a fee of €10 million and could now be sold over twice that amount if the cash-rich Citizens come knocking on the door.
The Eastlands club, backed by billionaire owner Sheikh Mansour, have been used to capturing the players they want - with money obviously not an obstacle to them.
But it remains to be seen which team would Thiago be more interested in joining, with a move to City ensuring top wages while playing alongside Lionel Messi and company could prove too tempting.