The attacker was the subject of a £92m offer from the Gunners on Deadline Day but Sky sources understand a move has broken down.
The Sanchez-to-City deal developed throughout the day with reports claiming we had agreed a deal in principal to sell the Chilean global after they tabled an offer of £55m up front with £5m in add ons.
The north London club consider Lemar as "a replacement for Sanchez", and believe he will "placate fans" if the Chilean leaves. "Having been strongly linked to both Liverpool and Barcelona in recent days, the Gunners are the ones being punted today to land the man that they have been chasing all summer".
Thomas Lemar could still end up at Arsenal - after the Premier League side offered Monaco up to 92-million-pounds for the midfielder.
They appeared to have that with Arsenal joining the race today.
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"Quite simply, they look to have run out of time on that front".
Monaco don't want to sell Lemar - but it's reported they're struggling to turn down the latest bid. Which Arsenal indicated they were willing to do.
The player is in the squad for France's game that kicks off in around three hours time and there is simply no way a deal could be done.
Arsenal sources have now told us that they will not be signing Lemar, which means Sanchez will be staying. "But it is unlikely to happen now".
However, with Oxlade-Chamberlain gone and Sanchez possibly set to follow, Wenger is now looking to splash the cash to maintain Arsenal's hopes of a return to the Champions League.