Speculation about Terry's future at the club he has spent his whole career at has mounted after big-spending City's offer for the 28-year-old England skipper was turned down this month.
Chelsea insist Terry is going nowhere but Lampard, who along with Terry formed the English spine of the side that won consecutive titles under Jose Mourinho, did little to dampen the speculation with his comments in The Times on Monday.
"I don't know what he will do," Lampard said. "I've been in John's position, but everyone at the club wants him to stay. I had an option to leave last summer, to go with a manager I love, but it came at a time in my life that just wasn't right.
"But that made me think an awful lot. I don't think people should criticise John. The fact is that you can never take away what he has done for Chelsea. He'll always be a legend.
"I hope and I'm confident that, whatever happens, he will continue to be considered a legend here."
City, awash with transfers funds from their Abu Dhabi owners, have reportedly offered to make Terry the highest-paid footballer in the country if he moves north, although Lampard believes money will not be an issue.
"People should respect his right to choose," he said. "When you're a successful player these kind of things are going to happen and then you have to make a decision.
"John's a very honourable man and it doesn't come down to money and things like that. I know John, I know he'll be thinking about what's the right thing to do as a player and, in the longer term, for his career. This is not just about money and people shouldn't try to make it so black and white."
City's pre-season spending spree has already resulted in three strikers, Carlos Tevez, Emmanuel Adebayor and Roque Santa Cruz joining, while England midfielder Gareth Barry moved from Aston Villa.
