Only Tottenham striker Harry Kane scored more Premier League goals than Vardy in 2015-16, with 25
The Gunners' bid for the 29-year-old England international is reported to be in the region of £20m and has triggered the release clause in his contract.
Vardy scored 24 goals in the Premier League for Leicester as the Foxes won the 2015-16 title.
The forward, who is currently preparing for Euro 2016, joined City for £1m from Fleetwood in 2012.
Vardy rose through non-league football after being released by Sheffield Wednesday at 16 for being too small, and was named the Football Writers' Association Footballer of the Year for 2015-16.
Since making his England debut in 2015, he has scored three times in eight internationals.
Arsenal, who finished second in the league, 10 points behind Leicester, have already signed Switzerland midfielder Granit Xhaka from Borussia Monchengladbach.
Vardy to Arsenal: The case for and against
Former QPR winger Trevor Sinclair on BBC Radio 5 live: "I am a big believer in karma. He has won the Premier League, he is happy and has a great group of brothers around him. He is settled, so why move?
"When you are a striker you can be in top form but then go to a club, not hit the ground running and then it can gobble you up. I would stay where he is."
Ex-Everton winger Kevin Kilbane on BBC Radio 5 live: "When the big clubs come calling, they might not come again. I think you go.
"You want to test yourself against the best and with better players. Technically, Arsenal are a better side than Leicester."
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