The Borussia Dortmund striker, 20, is expected to spark a bidding war this summer as his sensational rise continues.
Haaland recently became the fastest player ever to reach 20 goals in the Champions League, taking just 14 games, and every big club in Europe has been linked with his signature.
His contract is thought to contain a £64million release clause, but that will only become active in 2022, so it will take a sizeable bid to sign him this summer.
Man City certainly have the financial power and recent reports claim they are leading the chase, which makes a lot of sense to Townsend.
He told the talkSPORT Breakfast show: "If I was Haaland, I think Man City. They're the ones who are in for a No. 9, they're the best team at the minute.
"Just spare a thought for Man United, who could've got him for £20m when he went to Dortmund!"
Rangers legend Ally McCoist agrees, insisting Pep Guardiola's side represent the most appealing prospect for Haaland right now.
He added: "You'd have to think about Man City in current form, they're the ones who look light years ahead of everyone else at this moment in time."
Speculation linking Haaland to the Etihad comes as veteran striker Sergio Aguero's contract runs down.
The Argentine has spent ten glorious years at City, but that could come to an end this summer as he continues to struggle for minutes since returning from injury, with Barcelona reportedly interested in signing him.
However, Townsend warns against writing off the 32-year-old, who has been through a lot this season and can still help City in their bid for an unprecedented quadruple.
"He's only 32," Townsend said. "He had his knee surgery in the summer, he had to self-isolate, so I just don't think he's had that run of games yet.
"I still think you'd give him five/ten games back-to-back, he will be the Aguero of old, so I wouldn't write him off just yet.
"Especially with the games City have between now and the end of the season, he will have a say in how many trophies they win."
Crystal Palace star Andros Townsend has admitted he would join Man City over the likes of Manchester United and Chelsea if he was in Erling Haaland's position.