It is understood that Arsene Wenger and co are set to splash out upwards of £35m for the 23-year-old with the transfer possibly set to be announced this week.
Now German giants Gladbach have revealed that a deal for Xhaka is on but failed to state with which club.
They posted on their official website: “There has been a specific offer for the Swiss midfielder [Xhaka].
“[We have] an agreement with the interested club but [it] is still pending.”
Arsenal want Xhaka to replace the likes of Mikel Arteta, Mathieu Flamini and Tomas Rosicky who will all leave the club this summer.
The ex-Basel ace has featured in 40 games for club and country this term, netting three times and picking up as many red cards.
He will bring some much-needed steal to Wenger’s midfield but has on-going questions over his temperament.
Arsenal fans will be able to see Xhaka in action with Switzerland at Euro 2016 next month.
His national side face France, Albania and Romania and the 6ft 3in centre-midfielder will be a prominent part of their campaign.