The England under-21 ace has not started a Championship game for the Elland Road club this season.
The Gunners have a clause to recall Nketiah next month.
And it was reckoned Arsenal were set to bring him back to the club to sort out a new move.
But The Sun says the Gunners are happy for him to continue in Yorkshire.
The Nketiah camp will sort out terms on bonuses and perks to make sure he gets the most out of his stint with Marcelo Bielsa's outfit.
He has scored five times in 12 matches for Leeds this season.