Zelalem spent the 2015/16 campaign on loan at Rangers, helping them earn promotion back to the Scottish Premiership.
But the 19-year-old has featured just twice off the bench for the Gunners this season and is growing frustrated at a lack of opportunities.
Gedion Zelalem is close to a loan move away from Arsenal
Gedion Zelalem spent last season on loan at Rangers
The report doesn't name which side he is likely to join but it suggests a deal is close to complete a loan deal is close to being completed.
However Dutch publication De Telegraaf claim he is set to join VVV Venlo.
The United States youth international was originally linked with a move to Borussia Dortmund earlier in the month but the report suggested a deal was never close with the Bundesliga side.
Zelalem made his professional debut at just 16 years old after impressing on Arsenal's pre-season tour in 2013.
The German-born midfielder signed a two-year extension on his contract Arsenal, keeping him at the club until 2019.