Starsport understands the Foxes have offered £28m for Crystal Palace winger Andros Townsend.
And with Leicester closing in on a deal, it would open the door to Mahrez departing.
According to the Mirror, a domino effect could now ensue as the 2016 PFA Player of the Year waits for Arsenal to firm up their interest.
If the Gunners beat Roma to signing Mahrez, it will pave the way for Sanchez to go to City.
Arsene Wenger would have filled the void which would be the left by the Chile international.
And Arsenal would not face losing the forward for free next summer.
Starsport also understands City boss Pep Guardiola has been given the green light to splash out between £65m and £70m on Sanchez before Thursday’s deadline.
Wenger has insisted he is not for sale, but could also be offered defender Jason Denayer as part of a deal.
Mahrez, meanwhile, has refused to commit himself to joining Roma with Arsenal his preference.
The Mirror add Leicester boss Craig Shakespeare has given up persuading the Algeria ace to stay.
And a move for Townsend is expected to be completed within the next 48 hours.
It remains to be seen if Arsenal will bid for Mahrez, although his arrival would boost City’s hopes of snatching Sanchez.
However, Guardiola’s side are willing to wait until next summer to sign him for free if Arsenal refuse to sell.
