The former Celtic forward joined the Spanish side on a deal until the end of the season in January, but he has only made four league appearances amid fitness issues.
According to the Telegraph, Arsenal are looking at Dembele as an option to strengthen their attack at the end of the season, with Alexandre Lacazette and Eddie Nketiah likely to leave.
Atletico can make the 24-year-old’s move permanent for around £30 million but may well decide against it.
If so, the Gunners will consider making a £25m bid to Lyon for his services.
Dembele has had a difficult season, scoring one goal in 22 appearances in all competitions between Lyon and Atletico, but his overall record is impressive.
He has 45 goals in 108 appearances for Lyon, after netting 51 in 94 Celtic games.
Dembele’s successor at Celtic, Odsonne Edouard, is another option for the Emirates club but Leicester are considered favourites to sign the Frenchman for a fee in the region of £15-20m.
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