The 23-year-old England winger has garnered attention from a host of Premier League rivals with his current deal in north London set to expire at the end of the season.
Red Devils boss Sir Alex Ferguson is keen to lure Walcott to Old Trafford in a move similar to Robin van Persie's controversial switch from Arsenal back in August.
At the same time, Arsene Wenger is exploring the possibility of a January swoop for Manchester United misfit Nani, raising the chance of a swap deal with Walcott.
The former Southampton star is declining to sign a five-year deal worth £75,000-a-week to stay at the Emirates Stadium, and is looking for closer to £100,000-a-week.
Chelsea and Manchester City are the only two other interested parties - alongside United - who would likely meet Walcott's wage demands, but both would prefer to sign him on a free transfer next summer.
Liverpool manager Brendan Rodgers will attempt to bring the forward to Anfield in January, with his current valuation thought to be around £8million, given he has just six months left on his contract.
Arsenal will look to sell Walcott next month if a new deal is not agreed by the New Year, and according to the Daily Mail, he will snub the advances of Liverpool, Chelsea and Manchester City, in favour of his first-choice destination, Manchester United.