City chiefs had made concrete moves towards the 26-year-old in the last fortnight and were confident they had the field clear to themselves, citing good relations to Sociedad.
However, Barcelona, now armed with £198m following the sale of Brazil superstar Neymar to Paris Saint-Germain, have thrown a spanner in the works by declaring an interest.
Martinez has a £30m buy-out clause in his contract although both clubs are understood to be offering around £5m short of that, with the balance made up by add-ons and bonuses.
Sociedad are also aware of cursory interest from Italian giants Inter Milan and are now sensing an auction in a bid to raise the stakes even higher.
The Citizens have spent around £213m so far this summer but Guardiola is concerned the heart of his rearguard is still a little light and feels Martinez's ball-playing attributes are an attractive option for his asking price.
The player is attracted by a move to the Premier League but City know Barcelona's arrival on the scene will not be helpful to their cause.