It was the young Reds fifth game in the end-of-season mini-league and the defeat is a blow to their hopes of becoming national U18 champions.
The Gunners opened the scoring from the spot when George Johnston was judged to have handled the ball in the penalty area, but the Reds levelled through a spot-kick of their own when Adam Lewis netted after he was brought down.
Neil Critchley’s side actually played very well and dominated the game for long periods but another penalty led to Arsenal taking a 2-1 lead just after the half-time break.
With the Reds pushing forward in their search for an equaliser they left themselves open at the back, and the Gunners scored on the counter-attack before another penalty earned them a 4-1 win.