The Premier League trio have been heavily linked with the 20-year-old Spaniard, who is rated as one of the finest emerging talents in La Liga.
Despite being keen to stay with Malaga, Isco recently confessed that he would reluctantly move on to help the cash-strapped club.
This has alerted Real, who are now regarded as favourites to clinch his signature.
With a £30m release clause in his contract, it’s likely that the youngster will leave for a sizable fee.
City, Arsenal and Chelsea will face a tough task in persuading Isco to leave his home country, particularly with competition fierce for roles within the Spanish national team.
Malaga, who are owned by Qatari billionaire Sheikh Abdullah Al Thani, are in a state of financial turmoil after vast spending over the course of last few seasons.
This has forced the sale of a number of top players in recent times, with Santi Cazorla and Nacho Monreal, both of whom joined Arsenal, and Salomon Rondon just a few big names to have moved on.