20-year-old Palacios, who made his senior international debut for Argentina last year, was part of River Plate's Copa Libertadores winning team in December, starting both legs of the final against fierce Buenos Aires rivals Boca Juniors.
When asked about his future this week, the player is quoted by The Metro as saying, "I'm proud clubs like Real Madrid and Arsenal are interested in me."
Whether there is any truth to the claim remains to be seen as it is not uncommon for players and agents in South America to publicly talk up prospects of a high profile transfer to Europe.
But with Arsenal thought to have a minimal summer transfer budget of around £40m, before potential player sales, after recent heavy spending and failing to qualify for the Champions League for the second year in a row, they may have to get more creative with their targets.
Palacios - who seemingly came close to joining Real Madri after the Copa Libertadores final - would no doubt be a much cheaper option than a player based in Europe. It would, however, be a gamble and South America to England is not exactly a well-worn path.
Young talents leaving South America are typically more likely to land in Spain or Portugal first, where there is less of a culture shock and no language barrier.
Seemingly the only way for Arsenal to increase their transfer budget is by selling high profile players that may not be in Unai Emery's plans, potentially the likes of Mesut Ozil and Shkodran Mustafi.
Source : 90min