City will only be permitted a 21-man European squad rather than the usual 25 as part of UEFA's sanctions for breaching financial fair play rules.
UEFA sources had indicated last week that City would still need to have eight home-grown players in the reduced squad, but the club are understood to believe they only need to name five and are actively working on that basis.
That has had a significant impact on Manuel Pellegrini's plans for the transfer market for the summer - as part of the UEFA FFP settlement City have guaranteed to limit their net transfer spending to ?49million.
It means there will now be less emphasis on signing home-grown players or keeping those players such as James Milner, who has been linked with a move.
UEFA would not confirm the exact rule on home-grown players for the 21-man squad however.
A UEFA spokesman said: "UEFA is not in a position to make any further comment relating to individual settlement agreements at this time."
Meanwhile, City chairman Khaldoon Al Mubarak has said the club will not suffer FFP sanctions again.
He told the club's website: "This year, we will break even
Next year, we will go into profitability
We will keep investing in the club, we will keep investing in youth, we will have a sustainable project, in Manchester and across the board in the city football group.
"We have zero debts, We don't pay a penny to service any debts
For me, that is a sustainable model
However, our friends in UEFA seem to believe otherwise
They have their view, we have ours.
"I disagree with their views but we are pragmatic and one thing our fans need to know, we will do, as always, what is best for this club
If it means sometimes to take a pinch, we will take a pinch and move on.
"We will be pragmatic and know we have the right model and we believe in it and it is the right model and it will not compromise us and the strategy we have started and will continue to implement."
Khaldoon pointed out that six years ago the club was saddled with debt, had a poor infrastructure and had difficulties attracting talented players.
He added: "Over six years, step by step, we have invested in this club
We have invested in the stadium, in the best youth facilities in Europe.
"This has been a strategy
We have invested in top players around the world, good players, talented players, good people.
"We went from an investment strategy that was targeting six years of heavy investment in building up this ethos, this infrastructure to get us where we are today."