The Chilean's future at the Emirates has been uncertain all summer with just one year left on his contract and no progress on a potential extension.
Despite the Gunners being insistent on not entertaining any offers, a Mirror report now claims they are willing to sell Sanchez for a fee of £80m ($103.2m) with City reported to be favourites to land the forward's signature.
Pep Guardiola's side will officially submit a £50m ($64.5m) bid but Arsenal will stand firm on their valuation of arguably their most important player as they risk letting the former Udinese player leave on a free transfer next summer.
The same report claims that sources close to Sanchez have been informed that he wants to leave the Emirates as City have been given a boost in the belief that the 28-year-old wants to link up with former manager Guardiola.
The former Barcelona manager had placed the Chile international on his transfer wishlist before agreeing to become the Citizens' manager in the summer of 2016.
The news comes on the back of recent reports stating that Sanchez wanted a £125,000-per-week ($161,600) increase over the north London club's tabled offer of £275,000 per week ($355,600) in order to remain with the club.
When asked about his future at the club during Chile's recent Confederations Cup campaign in June, Sanchez remained coy.
"Right now I'm focused on the Confederations Cup," he said. "When this is finished I will see if I stay or if I go. I don't know. Yes it's [my future] clear but I can't tell you."