Gunners boss Mikel Arteta is keen to bring in a defensive midfielder in the New Year to provide competition for Thomas Partey.
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The Spaniard has Mohamed Elneny and Albert Sambi Lokonga to rely on, but knows he must bolster his squad with the club in a Premier League title race and in the knockout stages of the Europa League.
Luiz was targeted on deadline day, but Aston Villa turned down three offers for the Brazilian.
There was hope from Arsenal they could land him on a cut-price deal in the winter transfer market with his contract expiring next summer.
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But Luiz decided to commit his long-term future to the Midlands outfit last month to rule out a switch to the Emirates.
As a result, Arsenal are exploring new targets, with the Express stating Luiz's compatriot Danilo is on the club's radar.
Regarded as one of Brazil's top talents, the 21-year-old has already won the Copa Libertadores twice with Palmeiras.
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It has been claimed that the youngster has been scouted extensively by Arsenal.
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A bid could now be on the cards in January with Arsenal hoping to snap him up before another club makes their move.
Danilo recently helped Palmeiras with the Brazilian top-flight title with three games to spare.
He has appeared in a whopping 55 games in all competitions during the 2022 season - chipping in with seven goals and four assists.
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Arteta recently confirmed how Arsenal are poised to be active in January as he also looks to bring in a winger.
He said: "The planning of that period is extremely difficult.
"First of all because we know the January window, how special it is, the opportunities that you have, the short window that you have.
"Once you get the player they are straight away competing, so there is not an adaption process.
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"And obviously with the position that we are in right now as well, it demands as well another level of player - and that player has to be available.
"We will look at everything and let's see what we can do."