The 25-year-old centre-back has played a key role in taking Schalke back to the Bundesliga during his season on loan at the club.
The German club will not be taking up the option to buy him for a fee of €6m due to financial reasons and other clubs are in the mix to sign him.
With several teams interested in Itakura, there were suggestions Schalke could have signed him and then sold him for a profit this summer.
But according to German broadcaster Sky Deutschland, Manchester City inserted a specific clause to prevent Schalke from doing that.
If Schalke had decided to take up the option on the Japanese defender, the agreement with Manchester City would have prevented them from selling him immediately.
That option was not there for Schalke and they will now watch Itakura play for another club.
Celtic have a keen interest in signing him with Ange Postecoglou championing his pursuit at Parkhead.
Itakura has also attracted interest from England where newly-promoted Fulham and Bournemouth are interested in him.
The Japan international has other suitors in Germany with Eintracht Frankfurt and Hoffenheim believed to be keen on the centre-back.
