Sky sources understand the 18-year-old centre-back has a £36m (€40m) release clause in his contract.
He scored the winning goal on his Nice debut when he was 17 in the first game of last season (1-0 home win against Stade Rennais).
The French U21 international played 31 times for Nice last season, helping the club finish third in Ligue 1.
Sarr was born in Nice and has been at the club’s academy since he was five.
Arsenal tried to sign him before he signed his first professional contract in November 2016, according to Sky sources.