United were seemingly in the box seat to land the 25-year-old, but Simon Grayson’s Town have now tabled a rival offer to re-sign the right-back, who they only sold to Leicester last summer.
It’s understood that City have turned down Town’s offer, potentially worth £650,000.
Peltier, currently in Austria with his Foxes team-mates for a week-long pre-season training camp, remains part of Nigel Pearson’s squad - for now.
But City’s owners are thought to be willing to do business if an improved offer is tabled, with bosses keen to recoup their investment in Peltier, brought in for £750,000.
That could potentially price Leeds out of a fresh offer with the club still awaiting transfer funds to be released following completion of their much-publicised takeover.
Meanwhile, Town have rejected a bid to take Antony Kay on a season’s long loan - but the club concerned are not understood to be Lee Clark’s Birmingham or former club Tranmere.