The Premier League club are closing in on a £25 million deal for the Argentina international centre-back, and Otamendi has now joined agent Jorge Mendes in Manchester for talks.
The move will not, however, include Eliaquim Mangala heading in the opposite direction, with City having abandoned plans to offload the Frenchman, who gave arguably his strongest performance for the club in Sunday's 3-0 win over Chelsea.
Goal understands that talented forward Marcos Lopes, 19, could now be heading to Valencia as part of the deal for Otamendi, who had previously been a top target for rivals Manchester United in the summer transfer window.
Former Porto defender Otamendi was one of the standout performers in La Liga last season as Valencia achieved a top-four finish, conceding less goals than Real Madrid, while he also helped Argentina reach the Copa America final.
Despite their positive 2014-15 campaign, Los Che, who still owe City for the signing of Alvaro Negredo, remain in a position of financial vulnerability and are under pressure to sell to ensure they meet Financial Fair Play obligations.
Otamendi will become City's fifth signing of the summer, while Manuel Pellegrini's side now look unlikely to land Wolfsburg winger Kevin De Bruyne.
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