The 20-year-old is wanted by Leicester boss Craig Shakespeare with the Foxes stealing a march on their transfer rivals.
Spurs are believed to be in talks with Pep Guardiola's men over the sale of the England worldwide, with the defender said to covet a move to the Etihad Stadium.
Meanwhile, City want to sign Walker from Spurs but are not ready to match their valuation of £50m for the England worldwide.
Including Iheanacho in a player-plus-cash deal could be the key to City getting Walker, one of Pep Guardiola's primary targets this summer, and help Spurs solve a problem of their own.
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The city released a statement immediately after the verdict announcing it would offer Yanez a voluntary separation agreement. Yanez will also be paid for up to 600 hours of unused compensatory time.
Iheanacho has been consistently linked with a move to West Ham this summer, but after Slaven Bilic reportedly cooled his interest due to Man City's £25m valuation of the youngster, Leicester City now look set to swoop for the Nigeria international's signature.
Walker wants to leave Tottenham and Pochettino will let him go but only if he can secure an appropriate return for the impressive defender. He has found the net 21 times in 64 appearances (also assisted eight goals) for Manchester City across all competitions, having mostly played the role of an impact sub during his stay at the Etihad Stadium.
Despite the outline of an agreement being in place, Leicester are not the only side keen on Kelechi, with Spurs, Borussia Dortmund and Monaco also among his admirers.