The Spaniard has been instrumental to the club's turnaround in fortunes over the past two years.
Long out of the title race, the Gunners have finished second twice in the past two seasons.
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Per The Mail, if he does renew his deal, it may be the highest paid contract given to a manager by the club.
While he will get a big rise on his current deal, it is not likely to come close to what Pep Guardiola earns at City.
The four times in a row Premier League champion is said to be on a staggering 20 million a season.