The Premier League duo have been heavily linked with the 20-year-old in recent months, with reports emerging that they could make serious bids for his signature at the end of the season.
But, he is set to spurn their interest and pen a new deal with the La Liga club, for whom he has been impressive since breaking into the first-team.
Interest from many of Europe’s elite sides has forced them to push through contract negotiations to keep him at La Rosaleda.
Although he the new deal will commit him to Malaga in the long-term, there is thought to be a buyout clause in the region of £30m, which could lead to an eventual big money move.
Isco has made a fine start to the current season, notching five goals in 21 league games, whilst helping the Spaniards reach the knockout stages of the Champions League.
He began his career with Valencia, graduating to their first-team during 2010.
After a handful of displays Malaga swooped for his signature, fighting off interest from numerous other clubs.
Having been capped almost every youth level for Spain, Isco is expected to force himself into the senior set-up in the not too distant future.