The German winger has made a big impact since moving to the Club from Schalke in the summer of 2016 and was voted the PFA Young Player of the Year last season.
Speaking at his weekly pre-match press conference ahead of Saturday’s Premier League clash with Burnley at the Etihad, the City manager said: “The club are working on that (a new contract), yes.
“We value the quality of the player - the human being, the relationship with club, how settled he is, many things… that is what is important. Not whether they have played well in one or two games.
“Ups and downs, moments where you are better than other ones - that is normal. You help them in those moments. Help them understand how consistency is important for their careers and to become a better player then, after that, we will see.
“Sometimes we need one type of game, sometimes another - quicker, more counter. More control, less control.
“But there are no doubts about the quality of Leroy.”
Looking ahead to the visit of Sean Dyche’s team to the Etihad. Guardiola also confirmed that Kevin De Bruyne, who has been sidelined for more than two months after suffering a lateral collateral ligament (LCL) lesion in his right knee during training, was in contention to return.
Despite De Bruyne’s enforced absence, City have remained unbeaten in the league, winning six and drawing two of our eight games to date to go top of the table on goal difference.
And Guardiola was keen to pay tribute to the team spirit and togetherness within the City squad which has helped mitigate for the loss of the Belgian World Cup star.
But he also admitted he was delighted to be able to have KDB fit and available once again.
“Kevin knows more than anyone else how important the team is - help individual performances to grow and increase.
“I would have preferred to have had Kevin for the past two months.
“It is what it is, and the team is quite stable and solid. We have the points which is quite good. We cannot forget way we played, especially away.
“Now he needs to come back and fight to be part of team. Other guys played good so now we will see what happens.”