The 25-year-old Brazil-born player, who has 11 caps for Portugal, moved to the Molineux from Sporting Lisbon in August last year for a club-record transfer reportedly worth around 45 million euros ($48.9 million) on a five-year contract with an option of a further 12 months.
Nunes has stopped training with the team as he tries to force a move to Pep Guardiola’s side after Wolves reportedly rejected City’s opening bid of around 47 million pounds ($59.3 million) last week.
“He’s not with the group at the moment, his choice,” O’Neil told reporters after his side advanced to the third round of the EFL Cup following a 5-0 victory over League One club Blackpool.
“After the bid from Manchester City, he decided it was best for him to not to be with the group. Club policy and how we deal with things like that is set in place.
“As far as I’m aware, there’s been no improved bid. Matheus Nunes is still our player. We have a long contract still with him, and at this moment, I fully expect him to be here come Sep. 2.”
O’Neil said he is confident that they will find a solution.
“The next few days will be key of course and conversations will take place that will be private between me and Matheus,” he added.
Wolves next visit Crystal Palace on Sep. 3.
($1 = 0.7920 pounds)
(Reporting by Pearl Josephine Nazare in Bengaluru; Editing by Stephen Coates)