City, who are still strongly challenging the settlement offer from UEFA, are also facing a fine in the region of 60million euros (£49million) over three years, and a cap imposed for next season to ensure there is no rise on this season's Champions League A squad wage bill.
The reduction in the size of the Champions League squad to 21 would potentially hit the club hardest, and City would also have to ensure that there are still eight locally-trained players in that A squad.
Press Association Sport understands the sanctions are very similar to those being handed to Paris Saint Germain - the two clubs are among nine European sides being dealt with by UEFA's club financial control board (CFCB) for FFP breaches.
City have until the end of the week to reach an agreement with UEFA over the sanctions - but it is understood they are the club furthest away from reaching any final settlement.
If no agreement is reached City face the prospect of the case being handed to a panel for a non-negotiable decision.
Neither City nor UEFA would comment but it is understood the Manchester club have been negotiating forcefully for a significant reduction in that sanction but have been struggling to make progress.
The risk, however, is that if they are unable to agree a deal with UEFA then they could face even stiffer sanctions from the CFCB's adjudicatory panel.
No club is expected to be excluded from the Champions League for breaching the spending limits, the maximum possible sanction - UEFA president Michel Platini said last month he does not envisage that to happen.
Both Manchester City and Paris St Germain are believed to have fallen foul of the FFP rules with sponsorship deals related to each clubs' owners
Abu Dhabi-owned City have a £40million-a-year deal with Etihad airways, while Qatar-owned PSG have a back-dated deal with the Qatar Tourist Authority (QTA) which is worth up to 200 million euros (£165million) a year.
French newspaper L'Equipe has reported that UEFA has ruled the QTA deal should only be valued at half that sum.