After weeks of speculation, the Chilean has confirmed that discussion have taken place with the Premier League club to succeed the sacked Roberto Mancini for next season
The Chilean has long been touted as the replacement to Roberto Mancini, who was sacked earlier in May, and recently announced that he would be leaving the Liga side at the end of the season.
Pellegrini guided Malaga to fourth in La Liga and a quarter-final berth of the Champions League this season, and now seems only a matter of time before he takes charge at the Eithad Stadium.
"I have a verbal agreement with them and I hope it is carried out," he told television channel Canal Sur.
The 59-year-old insisted that he has not signed a contract with City yet, but revealed that discussion have been ongoing ahead of the expected arrival - a move which Goal.com revealed could persuade Carlos Tevez to make a U-turn and decide to stay at the club.
"As of today, I [have not] a signed contract," he added.
"It is true that Manchester City have shown a lot of interest that I become their coach and I have had conversations with them. Until things have been signed, you cannot say everything is completely done."
As exclusively revealed by Goal.com, Pellegrini is set to bring Malaga star Isco with him to City as the likes of Edinson Cavani and Ferdandinho top the club's list of summer transfer targets.