The 18-year-old was into the final year of his contract and the Athletic report that a number of clubs in the Premier League and across Europe were ready to pounce if he did not extend his stay.
However, the report states that an agreement has been reached and the defender will not be leaving on a permanent deal, although could move out on loan again this season.
The right-back spent the second half of last season on loan at Lincoln City in League One, making 17 appearances, scoring one goal and generally impressing with the Imps.
He was also in the England squad that won the European Under-19 Championship in June, coming off the bench in the final as Israel were beaten 3-1 in extra-time.
The teenager is not going to be challenging to play in the first team under Mikel Arteta yet, but is likely to be keen for another loan move after enjoying his time with Lincoln.
Speaking in March he said: ‘I came on loan to get as many minutes as possible and to play senior football. My loan is going well and they [Arsenal] are happy with my improvements and progression so we’ll see what happens when I get back.
‘I think coming here is the best thing for me, and getting a run of games in men’s football has helped me a lot more than playing in the 23s; but it’s not as easy as coming from a Premier League club and playing elsewhere.
‘In the Football League, it’s a different ball game and is a lot harder than playing 23s because of the physicality and the speed.’
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