The two teams meet in Germany on Wednesday night, when Arsenal need to produce what would be a remarkable comeback from a 3-1 defeat in the first leg of their last 16 tie.
But Bayern captain Lahm does not think Arsene Wenger's side are a force to be reckoned with anymore.
"I'd say they are one of the better teams in Europe but right at the top level? I don't think so," said Lahm.
Bayern will join Bundesliga rivals Borussia Dortmund in the quarter-finals if they knock out Arsenal while there could be no English club in the last eight for the first time since 1996.
"It is a surprise to have no English teams in the quarter-finals," said Lahm.
"They have a strong league and have gone far in the past but a lot of teams have caught up. We are here, Dortmund are here."
You can only watch the best Champions League coverage here on Sky Sports. Watch Bayern Munich v Arsenal exclusively live on Sky Sports 2HD and Sky Go from 7.00pm on Wednesday 13th March. Click here for more details