The Gunners are ready to make Walcott among the highest-paid players at the club with a lucrative contract, which would be boosted further by add-ons.
Manager Arsene Wenger spoke in length about the "socialist" pay structure within the Arsenal dressing room ahead of the FA Cup tie at Swansea, revealing there was a general consensus to keep pay disparity to a minimum, unlike many of their top-flight rivals.
Wenger, though, has stressed the need to keep Walcott on board at Emirates Stadium, with the player having already rejected one contract offer earlier in the season, but now both parties would appear close to reaching an agreement.
Walcott had also expressed a desire to be deployed more in his preferred central striker role, in which he has revelled in during recent weeks, crashing in a hat-trick in the 7-3 win over Newcastle.
While Wenger indicated signing up the 23-year-old England forward was his main priority during the January transfer window, Arsenal are still expected to bring in more additions as they look to break back into the top four of the Premier League and tackle Bayern Munich for a place in the quarter-finals of the Champions League.
Drafting in another striker would appear high on the agenda, given Gervinho is away at the African Nations Cup and Marouane Chamakh was allowed to join West Ham on a six-month loan.
Barcelona's David Villa and Adrian Lopez of Atletico Madrid are both reported targets, along with Sevilla's Alvaro Negredo and Mainz frontman Adam Szalai.
Elsewhere, Wigan's £9million-rated midfielder James McCarthy is another said to be on Wenger's radar, as is Rennes misfit Yann M'Vila.
The Italian press also have linked Roma goalkeeper Maarten Stekelenburg with a move to Emirates Stadium.
Midfielder Abou Diaby, meanwhile, handed Wenger a timely fitness boost when he returned to action from his latest long injury lay-off - having been missing with a thigh problem since September 29 - as he played more than an hour for the Under-21s against West Brom in their Premier League Elite Group game.
Full-back Andre Santos has been sidelined by a stomach muscle strain but also was back in action this afternoon.
The Brazilian scored the equaliser in the 1-1 draw at London Colney, where midfielder Frimpong, who has just returned from a loan spell at Charlton, was sent off for two late bookings.