The Mirror claim a deal is now agreed between the two clubs ahead of tonight's 11pm deadline.
City failed with an initial £50m move for Sanchez.
But their second bid tabled today has been accepted in principle.
Arsenal will receive £55m plus £5m in add ons for their star forward, who has been desperate to leave for City.
His departure, though, has been dependent on the Gunners landing a replacement.
And they have now revived their interest in Monaco winger Thomas Lemar, having made a £90m bid for the France international.
Alex Oxlade-Chamberlain's £40m switch to Liverpool completed earlier today has also helped bolster Arsene Wenger's budget.
If Arsenal's bid for Lemar is accepted by Lemar, they will do a deal with City over Sanchez for £60m, the Mirror say.
