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The Leicester Mercury claims the Algerian international is frustrated and wants out of the King Power Stadium this summer.
Mahrez has told City he wants to leave this summer and, although no bids have yet been received for the former PFA player of the year, Arsenal have long been the favourites to land the £50million-rated Algerian.
Now report claims Arsenal have pulled out in signing Mahrez and now focused their attention to Monaco star Thomas Lemar who helped the French club in winning the Ligue 1.
Arsenal have already seen two bids rejected by the French club but the North Londoners are refusing to give up and are planning a third bid in the belief they can get their man.
According to the reports, Arsenal are willing to pay £45m-plus for Lemar, who is considered Wenger’s top priority on the flanks.
Lemar’s representatives have held talks with Monaco and Arsenal in trying to get the deal done.