Pep Guardiola feels a "second league" would help young players to break into Premier League teams after Brahim Diaz left the club for Real Madrid.
Diaz signed a six-and-a-half-year contract on Sunday for a reported initial fee of €17million despite having never started a Premier League match.
The 19-year-old follows fellow teenager Jadon Sancho away from the Etihad Stadium, with the forward having thrived at Borussia Dortmund by starring in their brilliant first half of the Bundesliga season to earn England caps.
Guardiola has faced criticism for not handing enough opportunities to young players such as Sancho, Diaz and Phil Foden, who is also yet to be given a start in the Premier League.
But the former Barcelona and Bayern Munich boss believes it is necessary to revamp English football's approach to youth development to develop a more effective pathway.
"Create a good second league," Guardiola told reporters on Tuesday. "Create a good second team and you will see how many young players will be in the Premier League.
"Play against real teams. Against guys who are 24, 25, 26, 27 years old. Compete really every, every, every single weekend with real games. Fighting for survival or to be relegated, create that.
"And after, maybe the managers in the Premier League will have more courage to put them [in the team]. But they don't, they play every weekend friendly games."
City's Under-21 side face Rochdale in the third round of EFL Trophy on Tuesday, with the competition allowing Premier League youngsters to face off against lower-league opposition in competitive action.
But attendances have typically been low with supporters seemingly unconvinced by the rebranding of the tournament, which Guardiola does not believe is the answer to improve the pathway for youth talent.
"No, make a league," he added when asked about the EFL Trophy. "Where they don't play in front of 10 people or 12 people here in the second team.
"They don't compete really and that's why sometimes it's difficult to put them [in the team]… that's why they train with us, sometimes they play in the cup, sometimes go on loan, to see how they develop in that position.
"And after they come back and at the end it is not about being generous or more kind, they have to show on the grass, on the pitch. I speak [about this] many times, on the pitch it speaks for itself."
Diaz's departure did not come as a disappointment to Guardiola, who claims City did all they could to persuade the player to stay.
"I said many times. What we did with Brahim we did the same with Phil [Foden] and Jadon, important players we did absolutely everything [to keep]," he continued.
"The only one who decided to stay was Phil and that's all. We wish him [Diaz] all the best, of course. Going to Real Madrid is not a bad step so hopefully he can take the minutes he wants to take and he didn't want in the last period, for many reasons.
"We wish him all the best because he's a nice guy but on the other side, again congratulations to the academy and for the club to work so well. When this happens and teams like Madrid and important teams in Europe want our players it is because they are working really well.
"You have to take a look at all the big clubs in Europe, how many young players there are in the first team immediately. Today the guys who are 16, 17, 18, 19 years old, to be in a position with 40 games in the first team is so difficult.
"The young players need time - everybody. David Silva for example, he went out on loan at other clubs to become who he is right now and before he came here. So some players have patience and trust with the club and what we want to do, some they don't.
"There are many, many clubs in the world, not just Man City, and people decide. What we have to do is, the people we believe have a chance to go there, to do everything, in training with us and be with us, and trust with them. This is what we have done.
"And after, I have said many times, their families, agents, they decide what is the best for the guy. So that's all."