Arsenal are planning an audacious bid to seal Thiago's services from Bayern Munich despite Liverpool's interest.
The Spanish midfielder is set for pastures new after telling the Bundesliga champions that he will not be extending his contract.
Bayern are prepared to sanction his exit but want £23m for the midfielder who has spent seven years at the Allianz Arena.
Both Arsenal and Liverpool are reluctant to spend such a fee on a 29-year-old who will also command high wages, reports the Daily Mail.
The Reds have a host of midfield options and may yet move some of them on this summer as a result.
Georginio Wijnaldum's deal continues to wind down and doubt continues to swirl over his future.
Arsenal meanwhile are keen to strengthen having finished the season strongly under Mikel Arteta.
The Spaniard has already called on the Emirates hierarchy to invest if they want to close the gap on the Premier League's elite.
He said in July: “If you are not in the Champions League and you say: ‘OK, I don’t invest because I don’t have the financial ability to do it,’ but the other clubs invest, then the gap becomes bigger.
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"If I do want to invest and risk, and then I don’t reach it, what happens? So at some stage you have to make a decision: whether I want to aim to make that gap closer and go for it, or I stay where I am.”
Atletico Madrid's Thomas Partey is another midfielder to have been linked with the north London outfit.
But again the asking price is proving to be a stumbling block with the Gunners potentially having to sell players in an effort to raise funds.
Lucas Torreira and Mohamed Elneny are among those linked with the exit door.
