The 21-year-old midfielder, valued at €20 million on website transfermarkt.com, helped Malaga reach the last eight of the Champions League last season and has caught the eye with several scintillating performances at the Euro Under-21 tournament in Israel.
Asked about offers from Real and City, Malaga native Isco told Spain's AS sports daily on Monday they were "on the table".
"I know that both Manchester City and Real Madrid are two great clubs," he added. "I want what is best for me and for Malaga."
Isco said he had not spoken to City's new manager Manuel Pellegrini since the Chilean decided to leave Malaga and move to the Premier League at the end of last term.
However, Pellegrini's presence at City might help swing his decision the way of the Manchester club, Isco added.
"He is a great coach who has done some impressive work at Malaga, as he did at other clubs, and I am sure things will go well for him [in England]," he said.
"It's true that I know Pellegrini already, I know how he works and he has been fundamental in my career during the two years I have been at Malaga with him.
"It's a point in favour that we worked together and that I know how he works but it's not definitive.
"I am going to take a holiday [after the Euro Under-21 Championships], which I need, and then decide my future."
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