The Sun is reporting that the teenager is poised to complete a move to the north London side in the January transfer window.
The same article states that Manchester United were long-term admirers of the Sunderland starlet.
According to the same story, the Red Devils even made an offer for the Black Cats teenager this summer.
The Sun go on to reveal that Arsenal have stepped in to take control of the race to sign Pye.
The report adds that Arsenal will be free to sign Pye in January after he turns 16 in October.
Pye is thought to be able to play at centre-half and full-back.
Arsenal’s defence continued to struggle at Watford on Sunday after Sokratis Papastathopoulos and David Luiz both made key mistakes to cost the Gunners two points at Watford.
Pierre-Emerick Aubameyang scored twice in the first half to put Arsenal in control of the Premier League clash.
However, the Gunners allowed their lead to slip as Tom Cleverley and Roberto Pereyra both scored in the second half.
Arsenal are in seventh place in the Premier League table behind top-four rivals Manchester United and Chelsea FC.
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