The Gunners were close to sealing a £90m deal for Lemar on deadline day but according to the 'Daily Mail', they are now ready to move on from the French youngster due to financial demands.
With Barcelona poised to join the race to sign the 22-year-old France international any cost of a possible deal would soar, and the Arsenal board fear the cost would be too much for them.
Instead, the North London club will look at alternatives, and reports earlier this week have suggested that Arsene Wenger is considering a move for Lyon forward Nabil Fekir.
Another player which Wenger has set his sights on is Manchester City's Raheem Sterling. Arsenal failed in attempt to sign the England winger last summer, but he wants to try with a potential swap deal with Alexis Sanchez when the transfer window re-opens in January.
Manchester City are reportedly preparing another move for Sanchez in January, and Arsenal are keen on using Sterling as part of any potential deal.
However, Pep Guardiola refused to let the 22-year-old winger leave the Etihad in the summer, and with his superb start to the season it seems unlikely that he will be any more willing to sanction a move to Arsenal in January.