The England midfielder could leave the Blues for free in the summer with his current contract set to expire, having held off signing a new deal that was offered last summer.
That has alerted other clubs, with Liverpool and Arsenal heavily linked, but it is understood City have now raised the stakes by tabling an enhanced deal in hope Milner will stay.
Reports have suggested this could be worth as much as £165,000 per week over four years, making him one of the club's top earners.
Yet it still remains to be seen whether Milner, 29, will commit as he ponders what could be the last big move or contract of his career
Manager Manuel Pellegrini has previously insisted Milner’s delay in penning a new deal had nothing to do with money, but that the matter comes down to playing time.
The midfielder is thought to want to be sure that he is likely to play a prominent role at the Etihad Stadium having been frustrated by his bit-part role in last season's title-winning campaign.
This season he has been more active, making 27 starts in all competitions, including some of the biggest games of the campaign, despite needing to manage a knee condition.
Pellegrini has repeatedly said Milner is a valued member of his squad, and his versatility has been an asset, playing in central and wide midfield roles, as well as up front.
Asked about Milner at the weekend, Pellegrini said: "It's a decision James must take at the end of season, what is better for his future.
"I always talk that he is an important player for our team, he can play in different positions because he is an intelligent player.
"He always gives 100 per cent but it will be sorted at the end of the season."
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