Gunners must break their transfer record to bring Higuain to the Emirates this summer.
Real Madrid have slapped a £25.5m asking price on Arsenal target Gonzalo Higuain, according to the Evening Standard.
The Gunners and Serie A champions Juventus are both said to be interested in the Argentina international, who has made it clear he wants to leave the Santiago Bernabeu this summer.
Real president Florentino Perez is understood to have held talks with Juve officials at the weekend, while Arsenal have also been in touch about the 25-year-old hit-man.
Perez is demanding £25.5m for Higuain, with Arsenal only willing to pay £20m for the former River Plate star but talks between the two clubs are continuing.
The Scudetto winners meanwhile have offered just £18.7m for Higuain, with both suitors hoping Los Blancos lower their asking price.
The situation is complicated by the fact that both Arsenal and Juventus are interested in Fiorentina striker Stevan Jovetic, who has publicly announced his desire to leave the Serie A club this summer.