Manchester City will not stand in Mikel Arteta’s way if, as expected, he becomes the Arsenal manager this week and they would leave the door open for a return to the Etihad Stadium.

Arteta met with the Arsenal executives Vinai Venkatesham and Huss Fahmy in the early hours of Monday, with the pair photographed departing his Manchester home at 1.20am. A final meeting with Josh Kroenke, the Arsenal director, is believed to be imminent and Arteta’s appointment could be confirmed in the coming days.

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The episode threatens to create bad blood between the clubs, with City unimpressed at Arsenal’s conduct in courting their assistant coach. While there is an acknowledgement on both sides of the process that Arteta has conducted himself openly and honestly, City are distinctly surprised no mention was made before his meeting with Venkatesham, the chief executive, and the director of football operations, Fahmy. They believe there would have been ample opportunity to raise the topic earlier on Sunday, when senior officials from both clubs were at the Emirates Stadium to watch City win 3-0 but the subject was not broached and no official approach was lodged.

Nonetheless City will release Arteta with their blessing, although Arsenal will be required to pay at least £1m in compensation. Arteta has been mooted as a successor to Pep Guardiola and City have made it clear that they will monitor his progress if he takes the Arsenal job with a view to offering him a return if a vacancy arises.

The situation has been expedited by Arsenal’s haste to replace Unai Emery, where previously they had entertained the possibility of allowing Freddie Ljungberg to continue as the interim head coach. Ljungberg has won only one of his five games in charge and has made it clear to the club that the status quo is untenable. He is working with a skeleton coaching staff and, after the defeat to City on Sunday, said “a decision has to be made so we can have the same resources as other clubs”.

Arsenal’s pursuit of a manager has been racked with uncertainty. One leading target, Brendan Rodgers, signed a new contract at Leicester when their interest became clear and another, Mauricio Pochettino, is unlikely to consider offers until the summer. Carlo Ancelotti and Nuno Espírito Santo were briefly considered.

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Arteta joined Arsenal from Everton as a player in 2011. He captained the club before he retired at the end of the 2015-16 season and joined Guardiola at City. Speaking in 2014, he outlined his vision for managing a team and playing “expressive, entertaining” football. “I’m 100% convinced of those things and think I could do it,” he said.