In this work, the coupled dynamics of the gap flow and the vortex-induced vibration (VIV) on a side-by-side (SBS) arrangement of two circular cylinders is numerically investigated at moderate Reynolds number 100Re 800. The influence of VIV is incorporated by allowing one of the cylinders to freely vibrate in the transverse direction, which is termed as a vibrating side-by-side (VSBS) arrangement. A comparative analysis is performed between the stationary side-by-side (SSBS) and the VSBS arrangements to investigate the characteristics of the complex coupling between the VIV and the gap flow in a three-dimensional flow. The results are also contrasted against the isolated stationary and the vibrating configurations without any proximity and gap flow interference. Of particular interest is to establish a relationship between the VIV, the gap flow and the near-wake instability behind bluff bodies. We find that the kinematics of the VIV regulates the streamwise vorticity concentration, which accompanies with a recovery of two-dimensional hydrodynamic responses at the peak lock-in stage. On the other hand, the near-wake instability may develop around an in-determinant two-dimensional streamline saddle point along the interfaces of a pair of imbalanced counter-signed vorticity clusters. The vorticity concentration difference of adjacent vorticity clusters and the fluid momentum are closely interlinked with the prominence of streamwise vortical structures. In both SSBS and VSBS arrangements, the flip-flopping frequency is significantly low for the three-dimensional flow, except at the VIV lock-in stage for the VSBS arrangement. A quasi-stable deflected gap flow regime with negligible spanwise hydrodynamic (i.e., two-dimensional) response is found at the peak lock-in stage of VSBS arrangements. Owing to the gap-flow proximity interference, a high streamwise vorticity concentration is observed in its narrow near-wake region. The increase of the gap-flow proximity interference tends to stabilize the VIV lock-in, which eventually amplifies the spanwise correlation length and weakens the streamwise vortical structures. We employ the dynamic mode decomposition procedure to characterize the space-time evolution of the primary vortex wake.