The 24-year-old has played a key role for Los Blancos this term, scoring four times and providing two assists in 23 La Liga appearances for the Madrid club.
Diaz is enjoying his first full campaign for Carlo Ancelotti's side after a three-year loan stint at Italian giants AC Milan between 2020 and 2023.
The one-time Spain international featured in 124 games across all competitions at San Siro, finding the net for the Rossoneri on 18 occasions.
According to Nacional via Football 365, Arsenal are keen on securing the services of attacker Diaz ahead of the 2024-25 campaign, already submitting an offer for the player.
The report claims that the Gunners are willing to pay £60m for the services of the attacking midfielder, who has started 11 league matches for the 14-time European champions this campaign.
It is understood that Mikel Arteta has made the capture of Diaz a priority ahead of the summer as they look to continue their hunt for domestic and continental glory.
After a summer of heavy spending which allowed Kai Havertz, Declan Rice and Jurrien Timber to rock up at the Emirates, Arsenal are fighting for Premier League and Champions League trophies.
The North Londoners are currently sitting at the head of the top-flight standings, ahead of second-placed Liverpool on goal difference with 10 matches left to play.
After edging past Portuguese outfit Porto on penalties in Europe on Tuesday night, Arteta's troops will face Bayern Munich in the quarter-finals of the Champions League next month.
Diaz and Madrid will also compete in the last eight of the competition, facing the 24-year-old's former club Manchester
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