It has been reported that Tottenham had already made an offer of €40 million (£35.91m) for the 22-year-old Spain international.
The report has claimed that Arsenal have now placed a bid of €48m (£43.1m) for the youngster, a figure that could be enough for Spanish and European giants Madrid to sell him.
Ceballos joined Madrid in the summer of 2017, but the Spaniard has yet to make a massive impact at Los Blancos.
During the 2017-18 campaign, Ceballos made four starts and eight substitute appearances in La Liga for Los Blancos, scoring two goals in the process, according to WhoScored.
Arsenal or Tottenham Hotspur?
Arsenal reportedly bidding more than Tottenham means that they have advantage over their bitter North London rivals, but Ceballos may not be willing to join a club who are not in the Champions League and may not be for a while.
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