Grealish, who returned to training last week, was omitted from Enzo Maresca's travelling party as he continues to recover from the foot injury that ended his loan spell at Everton in January, an issue that required surgery and also cost him any outside chance of a place in England's World Cup squad.
The 30-year-old had contributed two goals and six assists in 20 Premier League appearances for the Toffees before the injury struck during a 1-0 win over his old club Aston Villa.
Grealish now enters the final 12 months of his contract at the Etihad with little indication he will be offered fresh terms on his reported £300,000-a-week wages, and the key question facing Maresca is whether to reintegrate a player once discarded by Pep Guardiola or sanction a permanent exit.
The Italian left the door open when asked about his plans last week: "At the moment, he is here. He is a Manchester City player. I always said the same. In any club I join, I like to know if there are players that belong to the club. It's my duty to try to coach them. Jack is here.
"I have a good relationship with Jack since I left. Also, we keep in touch, and the reason why is because he has a big heart and he is a very good guy. So this is the reason why and then we see what happens."
Grealish has made 157 appearances for City since his £100m move from boyhood club Aston Villa, scoring 17 goals and winning three Premier League titles and the Champions League.
McFarlane's departure, meanwhile, sends the 19-year-old to the Championship for regular first-team football after he arrived at City in a January 2025 move from sister club New York City FC, having rejected interest from Brighton, Borussia Dortmund and Bayern Munich to make the switch within the City Football Group.
He came through NYCFC's academy from the age of 11, turning pro at just 14 and making 13 first-team appearances before his transfer, but is yet to feature for Manchester City's senior side. He becomes Leicester's third signing of the summer as the Foxes prepare for the new Championship season following last term's Premier League relegation.