The 53-year-old manager's current deal is set to expire at the end of this season, but it is understood that his new add-on includes an option to stay with the north west England club until 2027 - which would keep him in the position for over a decade in total.
According to The Athletic, an announcement is "expected in the coming days".
The former FIFA World Coach of the Year joined Manchester City for the 2016/17 season, and he went on to lead the team to lifting the EFL Cup following a 3-0 defeat over Arsenal.
However, this season saw the club be defeated four times in a row, with the former City striker Sergio Aguero stressing to its players that they need to share the attitude of Guardiola, who has created a Premier League dynasty at the Etihad Stadium.
Aguero told Sky Sports News: "I think City are favourites to win everything, including the league, the [FA] Cup, the Club World Cup and the Champions League.
"Whatever City has to play for they'll be the firm favourites, but I think it all depends on the mentality they have because it's not easy to always be the favourites."
The retired footballer added: "I think City are where they are because Guardiola knows very well how to keep that mentality.
"For me, he's the key man for the club so that the players have the same winning mentality. Sometimes it gets difficult to win and it's normal, but Pep's team has been up there since he took charge, and that's something many people don't see.
"I think we have to acknowledge he's the reason his players have a winning mentality. He's strict and he makes the team be consistent every single game throughout the season."
Aguero was part of Guardiola's early success at City and believes that the coach's relentless desire to come out on top is pivotal to the club's achievements.
He said: "We should take our hats off because it's not easy to be there with the players every day, especially considering the players we're talking about.
"All the time, he's like, 'Come on, we have to keep winning!' Living that every day can get exhausting sooner or later, but he's been doing this for days, months, even years, and I think that's why City are one of the favourites because Pep never rests and he never gives a rest to his players. "That, for me, is the key to success for any team."
