Manchester City and Barcelona are working on a loan deal for João Cancelo, sources have told ESPN.

The Spanish giants are hoping to reach an agreement to loan Cancelo for a season with an obligation to make the move permanent next summer with sources telling ESPN that negotiations are set to be stepped up this week.

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City are willing to let Cancelo leave but are reluctant to accept a reduced fee and will demand around 60 million ($66m) in the obligation clause.

Cancelo has been left out of the squad for the Super Cup clash with Sevilla in Athens on Wednesday. He was also absent for the 3-0 win over Burnley in City's Premier League opener on Friday.

The 29-year-old, who spent the second half of last season on loan at Bayern Munich, was part of the group which travelled to Asia for the club's preseason tour but does not look to have a future at the Etihad Stadium.

Barcelona are keen to land Cancelo to fill a void at right-back. Julián Araujo has been loaned to Las Palmas while Sergiño Dest is free to find a new club.

Cancelo, who is under contract at City until 2027, also has interest from the Saudi Pro League but sources have told ESPN that his preference is to move to Barcelona.

Meanwhile, City defender Rico Lewis has signed a new long-term contract, the club announced on Tuesday.

The 18-year-old, who broke into Pep Guardiola's squad last season, has signed a five-year deal which will keep him at the Etihad until 2028.

"It's been an unbelievable year for me and now to sign this contract is a dream come true," Lewis said.

"As a City fan I can remember watching us winning trophies when I was young and it's the only place I've wanted to be. To know I'm going to be here until 2028 is fantastic and I can't wait to keep working and keep improving.

"Everyone at the Club has been so amazing, starting with the Academy where I learnt so much and I am hugely grateful for everything they did."