Chelsea have agreed a pay an initial £40m for the 21-year-old in a surprise late deal that will push their transfer spending under the Todd Boehly-Clearlake ownership close to £1billion.
Palmer, who was a key player for England in their European Under-21 title win this summer, has agreed a long-term contract at Stamford Bridge and is due to be unveiled on Thursday.
Chelsea have moved for Palmer after a deal for Crystal Palace winger Michael Olise fell through. They considered moves for Arsenal’s Emile Smith Rowe and Barcelona’s Ansu Fati, but have swooped for Palmer and thrashed out a deal with City.
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Chelsea had a £35m bid for Palmer rejected on Wednesday but quickly returned with an improved offer, which was accepted before Wednesday night’s 2-1 Carabao Cup win over AFC Wimbledon.
Blues talent spotter Joe Shields has been key to their pursuit of the forward. Shields knows Palmer from his time as head of academy recruitment and talent management at the Etihad Stadium.
Palmer has been on the fringes of the City team under Pep Guardiola and they have decided to sell him after agreeing a £53m deal with Wolves for Matheus Nunes.
Palmer made 25 appearances in all competitions for City last season but just three Premier League starts. With their move for Palmer, Chelsea will take their spending in this transfer window beyond £400m.
The Blues have also signed Nicolas Jackson, Christopher Nkunku, Romeo Lavia, Djordje Petrovic, Lesley Ugochukwu and Moises Caicedo.
Meanwhile, Manchester United remain in talks over a season-long loan move for Marc Cucurella.
United are expected to pay between £2m and £5m for the left-back, who will move to Old Trafford as cover for injured duo Luke Shaw and Tyrell Malacia.
Callum Hudson-Odoi is in advanced talks about a permanent move to Nottingham Forest, having seen a deal with Fulham collapse earlier this month.
Tottenham continue to monitor Conor Gallagher in the event midfielder Pierre-Emile Hojbjerg leaves before Friday’s transfer deadline.
Bayern Munich remain locked talks over a move for Trevoh Chalobah but his £50m asking price could scupper a potential deal.
Ian Maatsen continues to stall on a new contract offer amid interest from West Ham and Burnley. A decision on his future will likely run late into Friday.
Deivid Washington, a £17m summer signing from Santos, is set to leave Chelsea on loan. He is being lined up for a move to Boehly’s new club Strasbourg in France. Romelu Lukaku has agreed a substantial pay-cut and joined Roma on loan, meanwhile.
Chelsea boss Mauricio Pochettino is open to keeping young duo Bashir Humphreys and Mason Burstow in his senior squad after they impressed in pre-season, but late decisions could be made to further their development on loan in the Championship.
Despite their significant spending, Chelsea could yet re-enter the transfer market in January to sign a striker. Brentford’s Ivan Toney, valued at £80m but banned until January, is considered a potential target.