Mikel Arteta has cooled his interest in signing Isco from Real Madrid due to the emergence of Emile Smith Rowe, according to reports in Spain.
Arteta is keen to improve his midfield options and had been considering a potential move for Isco in the January transfer window.
The 28-year-old has fallen out of favour at Madrid having started just three games under Zinedine Zidane this season.
Arsenal had targeting a possible loan deal for Isco for the remainder of the campaign.
But according to AS, Arteta is now reconsidering his plans following the emergence of Smith Rowe in December.
The 20-year-old has been in sublime form for the Gunners over the past seven weeks with a goal and three assists in six appearances.
And AS reports that Arteta is reluctant to block Smith Rowe’s progression by approving the arrival of Isco from Madrid.
Arsenal have also faced a battle to convince Isco to join them as the midfielder reportedly favours a move to Sevilla where he would link up with his former manager Julen Lopetegui.
Meanwhile, Arteta says he has been ‘delighted’ with Smith Rowe’s impact for Arsenal over the last few weeks.
‘He is a player that I really liked since the first day I watched him,’ the Arsenal manager said earlier this week.
‘He works really hard for the team and he had a really bad injury this year and hasn’t really trained with us at all.
‘For the last two weeks he has been much more involved and you can see what he can bring to the team.
‘I am delighted to have a young player with his talent and in that position. It was something that we needed.’