The German club has successfully negotiated the original purchase option down from €8m to a reduced fee after the English defender's strong second half of the season at the RheinEnergieStadion.
Kicker reports that the deal is close to completion, with Cologne sporting director Thomas Kessler having initially baulked at the full €8m option price after Simpson-Pusey's loan performances justified the interest but also demonstrated he was not yet a guaranteed starter.
The 20-year-old England youth international joined Cologne for the second half of the 2025-26 season after being released from Manchester City's first-team plans and made 11 appearances for the Bundesliga club, performing well enough to prompt the permanent interest.
He signed his first professional contract at the Etihad Stadium and made one first-team appearance — an FA Cup outing — before his loan move to Germany opened a new chapter.
Cologne will compete in the Bundesliga again next season following a successful survival campaign.