The 19-year-old is out of contract next summer and has grown frustrated at his lack of opportunities at the Etihad after making just three appearances this season, none in the league.
Guardiola had hoped the Spanish Under-21 star saw his long-term future with the Premier League champions and begged him to sign a new deal.
Ahead of Saturday’s win against Bournemouth, Pep said: “We want him, we want to extend his contract four or five years – we will do absolutely everything, but it's in his hands.
"My advice if he doesn't want to stay he has to leave. It's simple.
"We protect him – the same with Jadon, Phil – but he has to decide. It's no more than that."
But Diaz has snubbed the chance to stay in England after agreeing a £60,000-a-week deal with the European champions.
And Los Blancos could even push for a deal to take him to the Bernabeu next month with City prepared to do business knowing Diaz will be leaving next year.
The Spanish giants do not want a repeat of their botched attempt to sign Jadon Sancho when he snubbed them to join Borussia Dortmund last year.
Sancho wanted to train the first-team squad and assurances over his pathway towards games time.
However, they were reluctant to agree to his terms and are determined not to make the same mistake again.
Real have told the midfielder he will be part of their plans for the second half of the season alongside the lure of helping Santiago Scolari’s side defend their Champions League crown.
Source: Read Full Article