The Chile striker has snubbed a £300,000 a week offer from the Gunners.
And he is demanding to soar clear as the Premier League’s top earner if he is to commit to a new contract.
The Manchester City target, 28, would eclipse the current highest-paid player in the top flight – Manchester United midfielder Paul Pogba who is on £290,000 a week.
Meanwhile, Arsenal’s Alex-Oxlade Chamberlain has turned down a new pay deal of a basic £150,000 a week, saying he will only accept a four-year deal of £200,000 – a £40m commitment for the north Londoners.
Starsport revealed on Monday that Arsenal had gone to £125,000 in a bid to persuade him to put pen to paper on a new deal.
In talks with boss Arsene Wenger on Thursday that figure was boosted to £150,000, but Oxlade-Chamberlain and his representatives are understood to have said they were holding out for more.
Liverpool and Chelsea are both keen to sign the 23-year-old England star whose current deal expires at the end of the season.
The Blues are willing to pay £35m and Arsenal are now far more likely to discuss a possible move with their London rivals.
Sanchez’s incredible pay demands also look sure to boost City’s chances of landing the hitman.
Despite his contract having less than a year to run Manchester City are ready to increase their opening £50m offer by a further £10m.
Wenger will welcome Sanchez back into the squad for tomorrow’s trip to Liverpool.
The Arsenal boss said: “Alexis wants to play. Alexis works hard and is focused to play.
“I deeply feel that he deeply loves to be here and he loves the club. In a professional job I always think that you have to make sure the guy who pays you gets what he’s paying you for.
“Alexis is in that mode and I think he will be until the last day he is here, he will give his best.
“I don’t consider their contractual situation to decide who plays and who doesn’t play.”
Arsenal, who have been drawn with BATE Borisov of Belarus, German outfit Koln and Serbia’s Red Star Belgrade in the group stages of the Europa League, received a boost by Laurent Koscielny’s return to shore up their defence.
Koscielny has not played competitively for Arsenal since the defender was sent off in the final league game of last season against Everton.
Barcelona have signed Borussia Dortmund winger Ousmane Dembele for an initial £96m.