The Spaniard is now isolating and will be unable to attend the tea-time kick-off at the Emirates Stadium.
A club statement read: “Mikel Arteta will miss our match against Manchester City on New Year’s Day after testing positive for COVID-19.
“Mikel is isolating in line with Government guidelines and we wish him well.”
Arteta is still expected to do press duties ahead of the game on Thursday.
Arteta previously contracted the virus in March 2020 ahead of a game against Brighton at the Amex Stadium, which prompted the shutdown of English football at the start of the pandemic.
Assistants Albert Stuivenberg and Steve Round will be in charge on match day.
The Gunners were without a number of players during their 5-0 win at Norwich on Boxing Day due to coronavirus, with Calum Chambers, Cedric Soares, Takehiro Tomiyasu and Ainsley Maitland-Niles among those infected.
Their game with Wolves on Tuesday was postponed due to an outbreak in Bruno Lage’s squad.
Brighton - who are due to face Chelsea at Stamford Bridge later today - have had matches against Tottenham and Man United postponed this season.
Albion have also suffered with covid in their camp and their request to postpone their home match against Wolves at the Amex just prior to Christmas was rejected by the Premier League.