The report claims the Gunners have been put off by the Uruguayan's excessive wage demands - he reportedly wants £135,000-a-week to leave the defending French champions.
Chelsea and Manchester City have also been linked with the forward, despite his recent move to PSG.
And Cavani's agent, Claudio Anelucci, recently confirmed his client intends to remain in France under Laurent Blanc.
That all but ends hopes of bringing the Uruguay international to the Premier League - but the report claims Arsenal boss Arsene Wenger has already moved on to other targets.
Th Gunners were one of the first clubs to inquire about Cavani, with a view to signing him at the first opportunity - most likely the summer.
The former-Napoli forward reportedly instructed his agent to sound out interest from across Europe's top clubs as he was not happy playing second fiddle to Zlatan Ibrahimovic.
But Arsenal were put off when Cavani's representatives demanded at least £135,000-a-week to join the Emirates Stadium club.
Arsenal are expected to strengthen in the January transfer window, with a striker a priority for Wenger.