The Citizens sealed their place in the next round of the European Cup after a comeback 3-1 victory over Club Brugge on Wednesday night.
It saw Pep Guardiola's men finish 22nd - two places above the cut-off line - seeing them grouped in a pair with 21st-placed Celtic.
Friday's draw was to determine who the British clubs would play out of Real and Bayern, who came 11th and 12th respectively from their eight league phase fixtures.
And City have been drawn to battle it out with Real in the standout tie from the knockout play-off round, while Celtic will take on Bayern.
City's meeting with Real renews their rivalry in European's premier competition having now been drawn against each other in each of the last four campaigns.
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The 2021/22 season saw Los Blancos dump City out in the semi-finals after losing 6-5 on aggregate courtesy of Karim Benzema's extra-time penalty.
Revenge was exacted the following term in the quarter-finals following a second leg masterclass which saw City win 4-0 [5-1 on aggregate], where they went on to lift the famous trophy.
But they couldn't get the better of the LaLiga outfit last year in the quarter-finals, with eventual champions Real winning on penalties at the Etihad.
As City finished below 16th in the table, they will play their first leg at the Etihad on either February 11/12.
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The deciding second leg will then take place at the Bernabeu the following week.
Should the 2023 Champions League winners advance into the last-16, another tough tie awaits them.
They could come up against either Spanish giants Atletico Madrid, who won six of their eight matches.
Or they will face Xabi Alonso's Bayer Leverkusen, who have lost just three games in all competitions this term.
The winner of Celtic vs Bayern would then face either Atletico/Leverkusen in the next round, with the draw for the last-16 to take place on February 21.
Other standout ties in the knockout play-off include AC Milan vs Feyenoord and PSV against Juventus.
The winners of those matches would then face either Arsenal or Inter Milan for a place in the quarter-finals.
Meanwhile, Paris Saint-Germain will come up against French side Brest in an all Ligue 1 affair.
And Monaco have been drawn against Benfica.
The winners of those two ties will face either Liverpool or Barcelona in the next round.
Borussia Dortmund will take on Sporting Lisbon, with Atalanta to face Club Brugge.
The victors of those play-off ties will then face either Aston Villa or Lille in the last-16.
Fire breaks out outside the Etihad Stadium ahead of Manchester City's Champions League clash