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Sources in Buenos Aires have told Sky Sports News he has a release clause somewhere in the region of £15m-£17m.
Alvarez is currently contracted to River Plate until December 2022 after the next Argentine Primera season, which begins in June.
City have been tracking Alvarez for some time along with a host of other top clubs.
The 21-year-old already has five caps for Argentina.
Alvarez has scored 36 goals and contributed 25 assists in 96 appearances for River Plate.
City have been looking for a striker since the departure of their all-time leading goalscorer Sergio Aguero and missing out on the capture of Harry Kane from Tottenham.
Despite being short of options in the striking department, City have managed to build an 11-point lead at the top of the Premier League, having played a game more than second-placed Liverpool, who are the division's top scorers.
'Difficult for Haaland to say no to Guardiola'
Borussia Dortmund's Erling Haaland has been linked with a move to Manchester City with the striker's agent Mino Raiola mentioning the club as a viable destination for his client.
Sky Sports News reporter Kaveh Solhekol:
"I would be very surprised if he stayed at Dortmund past this summer because of this release clause, and because of the kind of clubs who are after him. I think it's going to be almost impossible for him to say no to some of these clubs who are going to put offers in front of him.
"If you're talking about seeing Haaland in the Premier League, Manchester City are in pole position. We know they've been looking for an out-and-out striker for a long time, even though they don't really need one, and Pep Guardiola says 'we're thriving without an out-and-out striker'.
"I think somewhere down the line they need to sign a striker, and if you're going to sign a striker, and are as powerful and successful as City are, why not get the best young striker in the world at a very sensible price.
"Pep Guardiola is a very demanding manager, you have to play the Pep Guardiola way, and do what he wants you to do. We've seen players take a while to adapt to that. Normally players take at least one season to adapt to his way of playing.
"As far as Haaland is concerned, it would not be the easy option to go to Manchester City. Even though he would almost be guaranteed success if he was to go there.
"He would be able to move to other clubs where he could score a lot more goals and perhaps not have to work so hard, and the environment wouldn't be as demanding as it is at Manchester City, and then he could get his move to a Manchester City, Manchester United or Liverpool - or another club in the Premier League - three or four years down the line.
"I think it's going to be difficult for him to say no to Pep Guardiola."
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