City were runaway champions in the Premier League this season but were humbled by English rivals Liverpool at the Champions League quarter-final stage.
With domestic dominance secured, Guardiola wants to focus on taking his side further in Europe and believes Isco is the man to do that.
The aforementioned Spanish newspaper suggests City would be willing to part with £70million plus bonuses for the midfielder, who hasn't had as much playing time as he would have liked in Madrid.
Guardiola allegedly believes Isco would fit in perfectly to his team's style, whilst his free-kick ability will be a welcomed addition to Kevin De Bruyne's.
City feel they are in a good position to make a move for the Real player, especially if Isco pushes for an exit from the Bernabeu.
He has featured in 48 games in all competitions for 'Los Blancos' but some have either been coming off early for someone else or off the bench as the club boasts numerous attacking options.