Walters has been at Arsenal since 2020 and in January will enter the final six months of his current deal.
The highly-rated right-back, who can also play in the centre of defence, is yet to make his senior debut for the Gunners but has been on the bench 13 times, including in the last two games against Luton and Aston Villa.
He is pushing to make his debut in Tuesday’s Champions League dead-rubber against PSV Eindhoven, with Arsenal already confirmed as group winners.
Mikel Arteta is expected to rotate his side in the Netherlands, with fellow youngsters Amario Cozier-Duberry, Ethan Nwaneri and Myles Lewis-Skelly also among those hoping to make the squad.
Arsenal have high hopes for Walters, who previously spent time at Manchester United and Tottenham’s academies, and have held talks with him over a new deal.
But he is also attracting interest from Premier League clubs and sides in Europe.
Walters has represented England at youth level but he qualifies for a German passport due to his grandmother, which increases his attractiveness to European sides.
He is happy at Arsenal but interested clubs hope he might be tempted away by the offer of more regular game time.
There had been interest from sides to take Walters on loan in January, but it is now thought that Arsenal will keep him at the club for the rest of the season due to their defensive issues.
Arsenal have been hit hard by injuries at the back, with Jurrien Timber (knee) and Takehiro Tomiyasu (calf) both out. Thomas Partey, who can fill in at right-back, is also absent with a thigh injury.