The 28-year-old looked to be on his way out of Arsenal over the summer, but football.london reported Mustafi was offered the chance of extending his stay at The Emirates.
Mustafi is said to have snubbed the new terms as he is thought to be keen on completing a move to Serie A, where he can be closer to his wife’s family.
But while Arteta refused to be drawn on the negotiations, it seems the Gunners’ manager still has plans to use Mustafi going forward.
Asked about his centre-back by Sky Sports, Arteta replied: “Musti is completely fit to play [against Dundalk on Thursday] and [as] always the internal contractual situations, they’re going to be discussed internally.
“I’m really, really happy with Musti since I joined, the progress that he’s made, the performances that he’s had.
“He had a long-term injury, he’s worked so hard to get back to the position he’s in today.
“I just want to show again the trust that we have in him and get him playing and get the performances that we’ve had in the past from him as well.”
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Mustafi was one of the pleasant surprises following Arteta’s appointment, as the German produced improved performances to become a regular under the new coach.
He ended up making 27 appearances in total for Arsenal last season, though the arrivals of William Saliba and Gabriel Magalhaes put his position under threat.
It was only on Sunday that Mustafi was able to make his first appearance of the season, replacing the injured David Luiz just after half-time.
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Luiz is now facing a battle to be fit for Thursday’s Europa League group clash, putting Mustafi in line for a starting berth.
And Arteta suggested Mustafi can force his way back into the team with a solid display.
“There were a few cases when we joined in that position,” Arteta continued.
“We tried to help the players as much as possible and encourage them to play with confidence, try to give them the right solutions and then it’s up to them to show with their performances where they are.”