Sanchez joined Arsenal from Barcelona in 2014 and in a stellar 2016/17 campaign scored 30 goals and made 17 assists, though his form has since dipped.
His loss would be a major blow for Arsenal, who face losing another big-name player to one of the Manchester clubs, with Sanchez likely to follow the path taken by Robin van Persie, who swapped the Emirates for Old Trafford in 2012.
A number of Arsenal players have also joined City in recent years including Samir Nasri, Gael Clichy and Kolo Toure.
Wenger left Sanchez out of his squad to face Bournemouth on Sunday, where they slipped to a damaging 2-1 defeat, leaving them eight points off the top four.
Arsenal themselves have been linked with a £35 million move for Bordeaux forward Malcom but Wenger, who said the club would need a replacement if Sanchez were to leave, refused to confirm his interest in the Brazilian.