The England star is coming into the final year of his current contract and last week told Arsene Wenger that he won’t be signing a new deal.
The Gunners will now have to decide if they are going to cash in on him or gamble that he will sign a new deal before next summer.
Oxlade-Chamberlain has been offered around £100,000-a-week to stay at the Emirates and is believed to want assurances about regular first-team football.
Liverpool have been keeping close tabs on his contract talks but it is now seen as a straight shoot out between Premier League champions Chelsea and City.
Chelsea are today due back in London from playing the Gunners in China and will formally table an offer within 48 hours.
But that is likely to only smoke out interest from Manchester City who will switch their attentions from Alexis Sanchez who Paris St-Germain will make a £35m offer for.
Meanwhile, the Blues will step up their bid to get striker Diego Costa off their wage bill after being told by Antonio Conte that he doesn’t want him.
Conte is hoping that either Inter Milan or rivals AC Milan will take him on loan until Christmas when Atletico Madrid’s transfer ban will be lifted.
They will however have to reach an agreement on a fee with Atletico offering £26m which is some way short of the £45m Chelsea want for the Spaniard.
