I was wandering if that were an option myself. It makes sense and sounds well enough for me. My guess is that it's much like the "map's slang" 'up north' as discussed in the other comments above. I would love someone to beg to differ and enlighten us both.
- 'to the north' - should it be accepted or not and why? *
It's because we're not actually talking about the city's location, but are describing a fact about the city. If the sentence was just, "It is a city" (Es una cuidad) you probably would have used "ser" without even thinking about it.
However, if the sentence was instead, "The city is in the North" (La ciudad está en el norte) then you would have to use "estar." Now we aren't describing the city, but are talking about the location of the city.
It is correct and quite common. I'm not sure I'd call it "slang," but I'd consider it informal English. It comes from the fact that most maps have north at the top.
We'll also say "It's a city down south." On the east coast of the US, we'll say "It's a city out west." On the west coast we'll say, "It's a city back east."
It's not "standard English". By standard English, I mean the English used in business, or journalistic/newspaper writing, or in a textbook, or by a newscaster on a national network. Nor English taught in an English class is school . It is a colloquial use.
Duo is trying to teach standard English.
Although the Spanish preposition en is often translated as "on" in English, it does not always have that meaning. That's the case here. We wouldn't use the phrase "on the north" unless we were referring to the northern part of some place and that would require a special context to sound natural. Otherwise, an English speaker would want to know on the north what, the north shore, the north side of the country, etc.
Think about it this way. If you use the phrase "in the north," north is a noun representing a place. That makes sense. If you use the phrase "on the north," north is an adjective. That doesn't make sense without an accompanying noun.