The Premier League side secured a deal to bring the Spanish international back to the Emirates Stadium for a second successive loan season at the start of the 2020/21 campaign.
However, despite initial optimism from Gunners boss Mikel Arteta over Ceballos’ future at the club, and the potential for a full transfer this summer, he will now return to Madrid this month.
Reports from the The Independent claim Arteta has made a final decision on the 24-year old, with his red card in their 2-1 Europa League semi final first leg defeat to Villarreal rumoured to be a turning point.
But despite his own preference to head back and fight for his place in the Los Blancos line up, Zinedine Zidane is likely to sanction an immediate loan or sale.
Ceballos still has two years remaining on his deal in the Spanish capital but Zidane will open the door for a cut price exit in the region of €15m for the former Real Betis man.