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The Germany World Cup winner, according to reports in Spain, has already agreed personal terms with Arsenal over a switch to the Emirates Stadium.

But Arsenal are yet to agree a fee with Madrid for Khedira, who has entered the final year of his contract at the Bernabeu.

Madrid president Florentino Perez is keen to avoid losing the 27-year-old for absolutely nothing in nine months time and is prepared to do business in the winter transfer window.

It is understood Khedira is hopeful Arsenal and Madrid will be able to negotiate a package that will allow him to complete a switch to join Arsene Wenger & co in north London in January.

But if the Gunners fail to do so, it could leave the door open for Milan to swoop.

Italian media outlet Tuttosport have claimed Milan will make a last-ditch bid in an attempt to lure Khedira to the San Siro.

Milan boss Filippo Inzaghi is thought to keen on adding the former Stuttgart enforcer to his midfield ranks as he attempts to guide his side back into the Champions League after a disastrous eighth-place finish last season.