Reports last week suggested that the Gunners were closing in on a £5m move for the 19-year-old midfielder.
Blanc, however, insists that he is keen for Rabiot to remain in the French capital and says that the club have offered him the chance to extend his contract - which expires next summer.
"I want Adrien Rabiot to remain in Paris," he told reporters at a press conference. "The decision is not mine, he might leave the club. He has had an offer to extend his contract with PSG."
Italian giants AC Milan are thought to be rivalling Arsenal for the player's signature.