City identified De Bruyne as a primary target ahead of the summer and have pursued the Belgian throughout the transfer window.
Wolfsburg manager Klaus Allofs suggested on Thursday morning that while De Bruyne was keen to join City, a deal was yet to be agreed.
But at the Champions League draw in Monaco on Thursday evening, Allofs suggested progress had been made in negotiations and that a deal is nearing completion.
“We got closer," Allofs said. "Maybe there will be a decision in the next hours one or the other way – [the] latest on Friday.”
Wolfsburg also confirmed that both De Bruyne and Ivan Perisic - who has been heavily linked with Inter - have been left out of the squad for the Bundesliga meeting with Schalke on Friday.
City are now understood to have scheduled a medical for De Bruyne on Friday as they close in on the 24-year-old.
Brian Marwood, City's Managing Director of Football Services, declined to comment when asked about De Bruyne at the Champions League draw, but did indicate there could be players both joining and leaving the club before the transfer window closes on Tuesday.
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