The 23-year-old Argentinian has long been linked with a move to Arsene Wenger's side after playing a part in Sarsfield's 2009 Clausura success, with interest in his services intensifying having recently helped steer Velez to another Clausura crown.
Serie A side Palermo - who reached the Italian Cup final last season, eliminating AC Milan in the semi-finals before falling to Inter - were among the contenders to secure the attacking midfielder's signature, with Inter, Roma, Malaga and Sevilla also believed to be tracking the former Boca Juniors youth player.
However, Zamparini has since revealed on Italian radio that they have lost out, and that it is the Gunners who Alvarez had agreed to put pen to paper with.
"We were interested in Alvarez, we were very close to him in January," he told Radio Kiss Kiss.
"We lost him due to our mistake and I know that he has already signed for Arsenal."
Velez Sarsfield have demanded €12 million for Alvarez's services, with Zamparini previously telling Corriere dello Sport that he was not confident of landing the midfielder due to the interest of the Emirates Stadium outfit.
"We are very interested in Alvarez, but it will be difficult to bring him to Palermo considering that there are other clubs like Arsenal and Malaga interested in him," he said.
