The Edwardian Group, owner of the Radisson Blu Edwardian Manchester, has tabled a counter bid for the Peter Street site next door owned by Benmore.
The vacant block has long been linked with InterContinental Hotels Group but a deal has not been agreed with Benmore.
The Edwardian Group, headed by Jasminder Singh, acquired the Radisson in autumn 2011 out of administration and is on a national expansion programme. Early this year the cash-rich group bought the Odeon West End cinema in London's Leicester Square, revealing plans to create a 245-bed hotel on the site. Edwardian Group showed equity of £421m in its last accounts, published in 2011.
Singh and his team are keen not to lose market share in the city's increasingly competitive hotel market. The extension across the road into Theatre Royal would be created through a walkway between upper floors. Radisson would gain a stronger foothold within the so-called ring of steel, secure accommodation during political conferences at the neighbouring Manchester Central convention centre.
The extension would contain large high-end suites and take the hotel's offering further upmarket, to satisfy the council appetite for more five-star rooms in the city.
Meanwhile, IHG and its partners are in protracted talks with Benmore to deliver a InterContinental Hotels & Resorts tower on the site, designed by Roger Stephenson. Contractor Laing O'Rourke is believed to have offered to fund the IHG hotel in return for the construction contract.
IHG has also been linked with the former Employment Exchange in Piccadilly, possibly for its Holiday Inn brand.
All parties declined to comment.