Sky News reported that Arteta is the favourite to succeed Arsene Wenger and would have around £50m to spend on new players this summer if he gets the job.
Club legend Patrick Vieira was also linked with the role but the former midfielder, now head coach at New York City, is no longer thought to be in the running.
GETTYMikel Arteta is widely fancied to succeed Arsene Wenger
Wenger's assistant Steve Bould has also been offered a new role but the former defender hasn't yet given an indication of his future and is understood be weighing up an offer from recently relegated Stoke City.
Arteta who has been Pep Guardiola's right-hand man, assisting the Spaniard to lead Manchester City to the Premier League title is keen on returning to the Emirates after working with Guardiola just two years.
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His class on and off the pitch slots in with Arsenal's philosophy and the one which Wenger has created, plus, let's be real, he would also represent a much cheaper option to the likes of Max Allegri or Luis Enrique who are being touted as potential successors to Wenger.
The ex-Everton midfielder was the first person the Catalan coach called to bring into his backroom staff and is rated very highly at the Etihad.
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"That's why I think my best moment and time is when I played for Arsenal".
However, Chief Executive Officer Ivan Gazidis and director Josh Kroenke, son of Stan, has backed Arteta to steer the club in the right direction.
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The search has begun for Wenger's successor after his 22-year association ended with a win over Huddersfield Town on Sunday and the north London outfit are hopefully of naming a new manager before the start of the World Cup in Russian Federation.