The Premier League giants will go head-to-head next month in an attempt to land N’Zonzi in a £26m deal.
Blues boss Antonio Conte has been tracking the midfielder all season as he looks to tweak his squad at Chelsea.
But now it has emerged Pep Guardiola is also keen on N’Zonzi after turning to him following a serious knee injury to Ilkay Gundogan.
The German international has damaged ligaments and could miss the rest of the season.
“Chelsea and Man City will compete for Steven N’Zonzi”
Guardiola wants to strengthen his midfield options as he looks to catch Conte’s men at the top of the table and rates N’Zonzi highly.
N’Zonzi, 28, has emerged as one of the finest midfielders in Europe since joining Sevilla from Stoke in a £7m deal in 2015.
He helped the La Liga outfit win the Europa League in his first season in Spain and was also named in UEFA’s Europa League squad of the season.
Italian champions Juventus have also been keeping close tabs on N’Zonzi and were expected to make a move for him next summer.
But bosses at Conte’s former club have been put-off by the price and are not willing to meet the release clause of £26m.
Sevilla are reluctant to let N’Zonzi leave but know they will be powerless to keep him if a club meets the asking price.
Both Guardiola and Conte have huge funds at their disposal and it might come down to a case of who is willing to hand N’Zonzi the biggest personal terms.
N’Zonzi, who also played for Blackburn in the top flight, can expect to double his wages by landing a deal worth around £125,000-a-week.
Guardiola, meanwhile, has also targeted Juve defender Alex Sandro as he looks to sign a new left back next summer.
The Brazilian full back joined Juve from Porto in 2015 and won the double in his first season in Turin.
He is under contract until 2020, but Juve bosses could hand him a new and improved deal in a bid to keep him out of the clutches of Guardiola and his billionaire owners at the Etihad.