It emerged last month that Gunners chiefs were in talks with the 29-year-old and the Daily Mailclaim a deal has been struck.
Spanish side Athletic Bilbao were linked with left-back Monreal in the summer but a move failed to materialise.
Bilbao made their interest in the Spaniard known but Arsene Wenger refused to sell.
Monreal joined Arsenal from Malaga in 2013 for £8.5m.
He initially struggled for first-team action with Kieran Gibbs being the preferred option but has gradually established himself at the Emirates and has not missed a minute in the league this season.
His current contract expires in 2017 so the new deal will keep him in north London for a further season.
Mikel Arteta's future is less clear with his deal expiring at the end of the campaign.
A decision on whether to offer him fresh terms will be made later in the season.
