The left-sided Benfica defender - who can also play as a defensive midfielder - had been expected to move to Spain until City moved swiftly with an ambush bid to beat Real to his signature.
Star of David: Benfica defender David Luiz is poised for a big money move to Manchester City
It comes 24 hours after they began their £24m raid for James Milner - although Aston Villa's American owner Randy Lerner is determined to resist any attempts by City to lure his highly rated player.
The billionaire said: 'I'm not worried about losing James Milner. I think James will play for Aston Villa and should play for Aston Villa.
'I'm not dismissive of the realities that a player that has received the attention and acclaim of James is going to spark discussion and debate about a move and so on. The answer is "No", I don't worry about him leaving because he is wanted at this club.'
It could be that Manchester City include England Under 21 defender Nedum Onuoha in their proposed offer for Milner.
As they look to wheel and deal in the market this summer, Luiz is among their top targets.
Manager Roberto Mancini has watched him several times this season - notably when he impressed at left back for Benfica against Liverpool in the Europa League quarter-finals - and believes the all-action player is worth the investment.
Luiz, 23, has also been watched by Chelsea and Manchester United, but City are the first to come close to Benfica's valuation and the player is keen on the move.
The 6ft 2in defender was a pivotal figure in his side's resurgence last season and helped them to the Portuguese title.
Benfica still hope to drive the figure close to his buy-out clause of £43m but the player and his representatives are confident a reasonable compromise can be reached and City's £25m will be sufficient.
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