The 21-year-old centre-back signed for the Gunners from Bolton last summer in a deal worth just over £2million and impressed in the handful of games he featured in last season for the north London club.
Holding made a total of 18 appearances in all competitions for Arsenal where he helped the club defeat Chelsea in the FA Cup final last month, as well as impressing towards the end of the season in the new back three system.
Arsenal fans have taken a liking to Holding and believe he has the potential to become a top centre-back as he matures.
Arsene Wenger is now set to hold talks with the young defender over a new deal.
However, with Wenger looking to add more depth and quality to his squad this summer, it remains to be seen whether Holding will be a part of the first-team next season or be loaned out to gain further experience and game time.