It comes more than three months after the Argentina international first told Chelsea he wanted to leave, intimating he wanted to join Real Madrid only for the Spanish club to rebuff him.
The size of the fee matches that paid by Liverpool to Newcastle United for Alexander Isak a year ago.
The move will reunite the 25-year-old with City boss Enzo Maresca, with whom he worked when the Italian was in charge at Stamford Bridge.
Fernandez, who has now been given permission to speak to City and finalise the move, has spent three-and-a-half years at Chelsea after signing from Benfica for a then-British-record £107m ($A202 m).
He could be one of two new arrivals at City on deadline day with the club also closing in on the signing of Everton winger Iliman Ndiaye.
In return City are understood to have agreed to loan Jack Grealish to the Toffees for a second successive season. The England international was on Merseyside to complete formalities on Tuesday. Everton have sold striker Beto to Serie A side Fiorentina for an undisclosed fee.
Also leaving Chelsea is striker Marc Guiu who has joined RB Leipzig on a five-year deal for £14.5m ($A27m), bringing to an end a two-year stay at Stamford Bridge.
The Blues have also agreed deals for Mykhailo Mudryk and Tosin Adarabioyo to join Tottenham, the latter deal allowing Kevin Danso to join Sunderland
Chelsea have agreed to sign Atalanta defender Honest Ahanor, with the player set to move to Stamford Bridge in 2027.
The 18-year-old will spend this season on loan at Crystal Palace from the Serie A side before joining Chelsea officially next year.
Arsenal have sold Brazil striker Gabriel Jesus to Barcelona, where he has penned a three-year deal, and Fabio Vieira has joined Hamburg on a permanent deal after spending last season on loan there.
Works continues at rebuilding Aston Villa, with winger Ibrahim Mbaye joining from Paris St Germain in a reported club-record £47m ($A89m) deal on deadline day.
Unai Emery's men have also acquired England defender Taylor Harwood-Bellis from Championship promotion hopefuls Southampton in a move rising to £30m ($A57m).
Liverpool midfielder Harvey Elliott, who endured a nightmare loan spell at Villa Park last term, has joined LaLiga outfit Valencia for the season.
Matias Fernandez-Pardo has arrived at Newcastle from Lille for £51m ($A96m), while Nick Woltemade joined Juventus on a season-long loan. Tottenham's Pape Matar Sarr moved to Turin on deadline day on an initial loan.
with agencies
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