The Gunners are also considering alternatives should their Cabaye interest stall, with Juventus midfielder Paul Pogba and Lyon playmaker Yoann Gourcuff also thought to be Arsenal targets.
Newcastle boss Alan Pardew was furious with Arsenal's decision to lodge a £10m bid for Cabaye on the eve of their game against Manchester City on Monday night.
The Frenchman had his head turned by the Gunners offer and didn't feature in the Mapgies 4-0 defeat to Manuel Pellegrini's side. He's thought to be keen to move to the Emirates Stadium.
Paris St Germain are also believed to be monitoring the situation, with reports claiming the big-spending French champions are willing to spend up to £15m on the France international.
But the Evening Standard reports Arsenal are now willing to match that fee, although even that improvement may not be enough as Newcastle are holding out for closer to £20m.
Arsene Wenger is under to pressure to spend following the 3-1 home defeat to Aston Villa at the weekend. But with Pogba also valued in excess of £20m, and Lyon reportedly demanding £15m for Gourcuff, Wenger will have to shell out if he wants to land a new player.