The Portugal defender risked a complete breakdown in talks on a new deal at the Bernabeu by reportedly asking for more than triple his current £30,000-a-week wages.
Madrid insiders feared the outlandish demands meant Pepe had already received a monster offer from England, with Chelsea regularly linked and Manchester United also being suggested as a possible destination by the Spanish press.
Transfer talk: Pepe (right) is latest big name to be linked with a move to Eastlands
However, Madrid newspaper AS claims City are the ones making moves behind the scenes, with an offer of £80,000 a week on the table if a deal can be struck in the summer.
His contract ends in 2012 and whether the 'interest' is a device to push his current employers even harder remains to be seen.
Pepe publicly speaks of a desire to stay with Jose Mourinho's team and it seems, with his agent Jorge Mendes, an agreement is a lot closer than just a month ago.
While the first weekly demand of £95,000 after tax was dismissed, the 27-year-old is willing to accept £65,000, while Madrid's latest offer is about £58,000 - according to AS.
However, City's offer would make him think twice and a deal around the £7million mark might be possible for a player with just 12 months left on his contract at the end of the season.
The Eastlands billionaires have also stalked Barcelona right back Dani Alves, who is seeking a monster pay rise to extend his contract beyond 2012, and snatching a pair of players from La Liga's big two would be a huge statement of intent.
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