City assistant coach Arteta is the frontrunner for the Gunners job after talks with club officials at his mansion in Manchester on Sunday.
The Mirror says City have told the Gunners it will cost them a seven-figure sum to land him.
City were blindsided by Arsenal's approach for Arteta and were angered by the fact they were not approached for talks on Sunday, despite spending the day at the Emirates.
Pep Guardiola has previously said that he will not stand in the way of his No.2 should he want to make the step up to the top job at a new club, but it remains to be seen how City chiefs will react to the way that Arsenal have gone about trying to secure their No.1 target.
Arteta played for Arsenal between 2011 and 2016, and is also a former captain of the club.