Manchester City are prepared to walk away from a move to sign Alexis Sánchez after balking at the financial demands of the deal, even though that could pave the way for the Arsenal striker to join rivals Manchester United.

Jose Mourinho, the United manager, refused to rule out a move for Sánchez on Friday night, describing him as a “phenomenal” footballer and claiming it was difficult to turn down the chance to sign players of that calibre when they became available.

Arsène Wenger, the Arsenal manager, admitted for the first time on Friday that Sánchez would not extend his contract, which expires at the end of the season, and United have now emerged as a serious buyers for the player.

City are still thought to be the front-runners for Sánchez and believe his preference is to join them and play for Pep Guardiola, under whom he spent a season at Barcelona.

But City are reluctant to meet Arsenal’s £35 million asking price and foot the £5m bill Sánchez’s agent, Fernando Felicevich, is reputed to want for his part in the deal.