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The quick-fire 21-year-old has scored 10 goals in 21 games this season, mainly as a winger, and that has prompted attention from Real Madrid and Atletico plus Liverpool, Tottenham, Arsenal, Everton and Leicester.
City though are also up to speed and sent European scout Rob Newman plus head of recruitment Gary Worthington to Athletic's Copa del Rey match against Villarreal last Wednesday. They also went again on Sunday night to see Athletic lose heavily to Barcelona at the Camp Nou.
Williams ran tirelessly for his side, who were down to ten men after just four minutes, and he was taken off after 56 minutes.
Athletic have offered the Bilbao academy graduate a new long-term contract on £15,000 a week after tax but they are struggling to agree terms with his agent Felix Tainta and he has a release clause set at £15.3million.
City midfielder George Evans, meanwhile, is close to signing for Reading on a permanent move.
Evans has been recalled from his loan at Walsall where the 21-year-old had scored four goals in 16 games.
Brentford and Wigan also had offers accepted by City.