Leicester are offering Michael Appleton up to £500,000-a-year to be their new assistant.
Foxes boss Craig Shakespeare wants his old West Brom coaching colleague Appleton in a new-look backroom.
Oxford manager Appleton,41, held talks with U’s owner Darryl Eales, who is desperate to keep him.
Appleton has become unhappy at the Kassam Stadium over budget cuts at the League One outfit under owner Eales.
The cut-backs have already seen Oxford’s head of academy and managing director leave.
Appleton is now tempted to join Premier League City but Eales is trying to talk him into staying after returning from holiday.
The ex-Manchester United trainee has previously snubbed interest from England U21s and United to stay with Oxford, where he earns nearly £200,000-a-year.
But unless he gets reassurances about significant funds to progress the club, Appleton is set to quit and double his salary.
He is on a one-year rolling contract and Eales will demand compensation.
Eales has lined up Appleton’s assistant Derek Fazackerley to take charge to ensure continuity should they lose their manager.
Oxford finished eighth this term and reached the EFL Trophy final at Wembley for the second year running after Appleton previously led them out of League Two since taking over in 2014.
Leicester meanwhile are keen on signing Hull keeper Eldin Jakupovic after already landing Harry Maquire from the relegated Tigers.