Pepe, 26, has made only 17 Premier League appearances this season, with Bukayo Saka nailing down a starting place in the right-wing position for the Gunners.
In the summer, Arsenal are aiming to bolster their wafer thin squad and will target a central midfielder, a right-back and possibly two strikers.
According to The Sun, the Gunners will now look to move Pepe on at the end of the season even if it means settling for a fee in the region of £25 million with the Ivorian one of few current fringe players worth a considerable transfer amount.
Pepe has been a huge disappointment since arriving from Lille in 2019 for a club-record fee of £72m.
A difficult first season at the club was improved upon last year when he scored 16 goals across all competitions.
However, with Arsenal having no European football this term, Pepe has found opportunities hard to come by and has not started a league game for the Gunners in over six months.
In January, it was reported that Pepe was looking to leave the Emirates with Newcastle United interested in his signature. But a transfer failed to materialise with Arsenal wary of weakening an already shallow squad.
Speaking earlier this year, Pepe revealed his frustration at a lack of playing time in north London this season while referencing communication issues with Arteta.
He said: ‘It is frustrating not to play. No player enjoys not playing but I have to respect the coach’s decision.
‘When a team is winning it is hard for a coach to make changes. Mikel has explained that to me and I know I have to work hard in training to get more playing time.
‘The coach knows what I think and how hard I am working. It is also about communication. Sometimes it is not easy to communicate with the language barrier – it has been a tough season for me.’
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