A four-year agreement was in place but before a final contract was drawn up, the Gunners have reportedly ended talks.
According to BBC Sport, neither party would say why the deal collapsed, but it's been reported by Sky Sports that the wages of Mesut Ozil compared to what the Wales star had been offered - was the major stumbling block.
Ramsey's existing contract expires on 30 June 2019 which means the 27-year-old will become a free agent in June - unless he is sold in January.
As things stand, the Welshman will also have the option of signing a pre-contract agreement with a foreign club from 1 January.
Ramsey joined the Gunners in 2008 in a £4.8m move from hometown club Cardiff City and is Arsenal's longest-serving player and scored the winning goals in the 2014 and 2017 FA Cup finals.