Arsenal blow as goalkeeper Kepa Arrizabalaga is set to sign new contract and stay with Athletic Bilbao

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Arsenal have been dealt a blow in their pursuit of Athletic Bilbao goalkeeper Kepa Arrizabalaga.

The highly rated 23-year-old is a target for both the Gunners and Spanish giants Real Madrid, with his contract at San Mames set to expire at the end of the current season.

But there has been a breakthrough in discussions and he is now expected to sign fresh terms, according to Talksport.

Athletic Bilbao goalkeeper Kepa Arrizabalaga is set to sign a new contract with the club

Arrizabalaga, who is considered to be similar in style to Manchester United stopper David De Gea, had been demanding a significant wage increase.

That had scuppered hopes he would stay in the Basque Country. However, Bilbao have offered him a deal worth around £2.7million-a-year.

And that is acceptable to Arrizabalaga, who is close to putting pen to paper on the contract.

That comes as a blow to Arsenal, who had targeted him as a free transfer signing

The new deal would also see his release clause increase from £8.8m to £66.5m.

Arrizabalaga is with the Spain squad for their World Cup qualifiers and celebrated his birthday while on international duty on Tuesday.

Arsenal visit Watford in the Premier League following the international break on October 15.