The likes of Liverpool and Borussia Dortmund are understood to be tracking the Syrian-born German Under-21 international and now City have been tipped to make a summer move.
Gladbach host Bayern Munich on Sunday and City are believed to have sent scouts to Borussia-Park to keep tabs on the highly-rated youngster.
Dahoud broke into the Gladbach side last season and the German club had been keen to keep hold but it seems as if they are resigned to losing the 21-year-old at the end of the campaign.
The midfielder will enter the final year of his deal this summer and the Bundesliga side are prepared to cash-in on the youngster rather than risk losing him for nothing when his contract comes to an end.
A fee of £20million has been suggested, but if two or more of Dahoud's reported suitors make concrete offers Gladbach could hold out for a higher price.