The 20-year-old was one of Mikel Arteta’s standout performers last season with 11 goals and seven assists in the Premier League.
Saka has already attracted interest from City, and MailOnline claim that the Premier League champions view the England international as their ‘dream replacement’ for Raheem Sterling, who moved to Chelsea earlier this month.
The report claims that Arsenal have now taken steps to prevent City from making a move by offering Saka a new contract worth at least double his current £70,000-a-week deal.
Saka, who has two years remaining on his current contract, has yet to respond to Arsenal’s proposal.
Should he accept, Saka would become one of Arsenal’s top earners alongside new summer signing Gabriel Jesus and Thomas Partey.
When asked how talks are progressing with Saka on Friday, Arteta said: ‘The contract talks are always private and whatever we are discussing with players is something we cannot do,
‘But obviously we are building a team for the future and those names are really important for us.’
Arsenal are also in talks to extend William Saliba’s contract.
The French defender has yet to make a first-team appearance for the Gunners but is currently with Arteta’s squad for their pre-season tour of the United States.
For more stories like this, check our sport page.