Starsport exclusively revealed last month that the French defender had been offered a two-year extension of his current contract, worth £75,000 – a rise of £15,000 on his current pay.
But talks stalled over Sagna’s demands on wanting a three year deal at £100,000, plus a signing-on fee.
And the 31-year-old has revealed he now looks likely to quit the club in the summer.
He told France Football: “I’m out of contract, as everyone knows.
“I still consider myself as an Arsenal player at present.
“But actually we had a small problem to agree (a new deal), and I don’t think I stay at Arsenal at the end of the season.”
It’s understood Sagna has had big offers from abroad, including Inter Milan, who were willing to pay £90,000 a week for three years.
But City look the favourites to land the right-back as he will link up again with former Arsenal team-mates and fellow France internationals Gael Clichy and Samir Nasri.