The Gunners striker is highly rated, and Arsenal turned down two bids – one in the region of £8million – from Brentford last year, while Sheffield United also held an interest before signing Rian Brewster.
Balogun, who has been capped by England at youth level, will be out of contract at the end of the season.
He had reportedly been offered a new contract by the club, but had stalled and refused to sign due to a lack of guaranteed playing time.
This season, he’s been given some game time in the Europa League and even bagged his first goals for the club against Molde and Dundalk.
But it seems despite Arsenal’s best efforts to tempt him into staying, club officials are now resigned to him departing.
Arteta is keen to offload players this January, and The Independent claims Balogun has been deemed surplus to requirements – along with eight other players.
That update will be welcome news for the Premier League champions, with Liverpool big admirers of the teenager.
As his contract being up at the end of the season, Balogun has the right to talk to foreign clubs about a future free transfer and even sign a pre-contract agreement.
But if Liverpool want him, they’ll either have to agree a fee with Arsenal to take him now or risk waiting for the summer and hoping he’s still available.
The Athletic claims a move to Germany is most likely, but with Arsenal eager to free up some money to go after a new creative midfielder this month, it is possible he will be available on the cheap.
Arsenal are said to be cautious about losing him for free, having nurtured him from a young age in the youth ranks.
Arteta isn’t willing to keep him, however, and has reportedly put him on the transfer list along with Shkodran Mustafi, Mohamed Elneny, Reiss Nelson, Callum Chambers, Joe Willock, Mesut Ozil, Sokratis Papastathopoulos and Sead Kolasinac.