Former Manchester City defender Danny Mills has claimed that Manuel Pellegrini's position as manager of the club is being undermined by ongoing speculation linking Pep Guardiola to the Etihad.

Guardiola has been a long-term target for City and has regularly been linked with the club in recent years, but the speculation has intensified since the Spaniard confirmed that he would be leaving Bayern Munich at the end of the season.

Mills believes that the situation must be having an adverse effect on the team, who slumped to a fifth league defeat of the season at the hands of Arsenal on Monday night.

"The Pep situation is an interesting one. I almost think the club has to come out and make some sort of statement or at least tell Pellegrini the situation," he told talkSPORT.

"Speculation was rife at the start of the season and Pellegrini has always been under pressure, and now we know that Pep is definitely available. The rumours are that, with the ex-Barcelona guys at Manchester City, that he will be coming in at the end of the season, but they are only rumours at the moment.

"Manuel Pellegrini must feel a little undermined. The players will be thinking that the manager might not be with them for much longer, and sometimes that can just drop 5% off your performance. That's not what City need at the moment."

Chelsea and Arsenal have also been linked with summer moves for Guardiola.