The 25-year-old Brazilian international has made 29 league appearances for la Viola since arriving from Spanish side Almeria a year ago.
And he was part of the Brazil side that successfully defended their Confederations Cup crown on Sunday with victory against USA, having netted for the Samba Boys against the same opposition in the group phase of the competition.
Gunners boss Arsene Wenger is believed to be a keen admirer of the middle-man, who has been capped 10 times by his country, with the Frenchman eager to add some steel to his midfield ahead of the new Premier League campaign.
And although the midfielder's Brazil comrade Gilberto had urged him not to think twice about a move to Arsenal should Wenger come calling, Melo has now extended his deal with Fiorentina until 2013.
"Fiorentina announces that its sporting director Pantaleo Corvino met in Milan with Felipe Melo's agent and an agreement was reached to extend the player's contract until 2013 with a buy-out clause also included," said a statement on the club's official website.
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