The warning comes after the Premier League found City guilty of all but one of the 115 charges brought against the club over alleged financial breaches.
The Telegraph reports that Emirati officials have warned the Government that billions of pounds of potential future investment could now be withdrawn because of the ruling.
Among the projects potentially affected is the proposed Oxford-Cambridge technology corridor, which ministers have been seeking private investment to develop as a major UK technology and life sciences hub.
The Government has committed £500m to the project but is seeking around £10bn in private investment, with Abu Dhabi regarded as an important potential source.
The dispute has also raised questions about the relationship between Manchester City chairman Khaldoon Al Mubarak and senior UK ministers.
Al Mubarak met Business Secretary Jonathan Reynolds in Downing Street two weeks before the Premier League announced its verdict against City. The Department for Business and Trade said the meeting focused on trade, defence and security rather than the football club.
At the time, Al Mubarak already knew City had been found guilty, although the details of the decision had not yet been made public.
The UAE's concerns have extended beyond the specific investment projects. Bloomberg reported that officials believed the Premier League's actions could influence the wider relationship between the UAE and the UK.
The situation has also placed Andy Burnham under scrutiny after the former Greater Manchester mayor said he would be “really concerned” if City’s owners decided to sell the club.
“They’ve been such a huge partner in the building of modern Manchester,” Burnham said. “Obviously, the building of Manchester City into the global force that it is.”
Downing Street subsequently stressed that nobody could be considered above the rules after Burnham's comments.
“The initial judgment [against City] is serious and there can’t be any suggestion that anyone is above the rules,” Downing Street said.
Manchester City have rejected the Premier League findings and said they will appeal the verdict.
The Premier League found the club guilty of arranging what it described as “sham contracts” and of artificially inflating its financial results by more than £900m to circumvent spending rules, according to the supplied report.
The case could therefore have consequences extending beyond football, with the verdict now being linked to the UK's efforts to secure major investment from the UAE.
For the Government, the immediate challenge is to maintain the relationship with Abu Dhabi while allowing the football authorities' disciplinary process to continue independently.