The move is not yet complete but the midfielder is set to join the Hammers to try and boost his chances of retaining his place in the England squad for Euro 2024.
There could be an option for West Ham to buy Phillips in the summer in the final deal but for now the two clubs are ready to conclude a straight loan move.
Phillips had also attracted interest from a host of other clubs, including Juventus, Newcastle and Crystal Palace, but West Ham saw off competition for his signature.
The 28-year-old cost City £42.5m in the summer of 2022 but has only started six games for them, and just two in the Premier League. He has only played 89 minutes in the top flight this season.
Manager Pep Guardiola apologised to Phillips last month for his lack of first-team football but said he “struggled” to see him in his team.
Phillips, who was also a target for West Ham last summer, will become the third midfielder they have signed since selling Declan Rice, following the arrivals of James Ward-Prowse and Edson Alvarez. He will give manager David Moyes a fourth option for his three midfield slots, along with Tomas Soucek and the two summer signings.
If the move is completed, Phillips could make his West Ham debut against Bournemouth on 1 February.