According to MailOnline's Amitai Winehouse, Mahrez has been left in "transfer limbo" as a result, with the two clubs thus far failing to reach an agreement after holding talks.
It is believed Leicester will let the Algerian depart the King Power Stadium this summer after he turned down Barcelona and others to stay on for a year following their sensational Premier League title win in 2016.
The winger was named PFA Player of the Year for his efforts in helping the Foxes complete their fairytale win, but like his team-mates, he failed to achieve the same levels last year.
He finished the campaign with 10 goals—four of which came in the UEFA Champions League—and seven assists in all competitions.
Per Squawka Football, his Premier League numbers alone were superior in the 2015-16 season:
As such, it's understandable Arsenal believe his value has dropped and £50 million is an excessive amount to demand, particularly after the less-than-spectacular season he just had. However, he remains one of Leicester's most important players, so it's to be expected they want as much as possible for him.
He could make for a strong signing at Arsenal even after last year, though.
The 26-year-old is a cut above those around him at Leicester, and he could shine alongside the superior team-mates he would have with the Gunners.
His technical ability is worthy of a place in their squad, and few can handle him when he's running at defences with the ball at his feet looking to create or go for goal himself.
Bleacher Report's James McNicholas believes he would be a good fit at the Emirates Stadium:
He's not without his issues, though. He struggled for consistency at times last season and offers little in the way of defensive solidity on the flank, per WhoScored.com:
The Foxes would likely be content for the player to stay put, but he clearly has ambitions of moving on having handed in a transfer request, per Winehouse.
Unless Leicester are willing to drop their price, it seems the former is more likely as it's difficult to imagine them finding a buyer at that valuation, even with the inflated prices of today's market.