The Gunners have been credited with an interest in the Boca Juniors star, who is also on the radar of Real Madrid and Benfica.
However, Gazzetta dello Sport has claimed that it is Milan who are now at the front of the queue to sign him.
The Uruguayan, still only 19, has impressed during his 29 league appearances for Boca so far and now looks set to head to Europe.
However, it has been suggested that Juve are not interested in signing him this summer which could allow Milan to swoop.
The Rossoneri are prepared to hand him a deal worth around £1.25million a year, although they are still yet to agree a fee for the £12.5m-rated teenager.