Southampton came from behind to inflict Arsenal's first draw since January at St. Mary's.
It seemed as though Arsenal's fine form was set to continue when Xhaka's goal gave the Gunners the lead in the tenth minute.
However, Mikel Arteta's side were flat in the second half and were punished by Stuart Armstrong who scored his first of the season after being played through by the impressive Mohamed Elyounoussi.
Story of the match
Mikel Arteta fielded an unchanged lineup from their previous Premier League outing, a 1-0 away win against Leeds United.
The hosts switched to a 4-2-3-1 formation from the 4-4-2 Ralph Hasenhuttl selected in their south coast derby victory at Bournemouth on Wednesday.
Southampton also made three changes from that win- Lyanco Vojnovic replaced the injured Kyle Walker-Peters in defence as Duje Caleta-Car moved into the right back position.
Ibrahima Diallo and Stuart Armstrong also returned to the starting lineup for the Saints.
Arsenal came close to opening the scoring in the third minute. Bukayo Saka cut inside from the right wing but his left-footed cross was just out of reach for the Arsenal attackers and went narrowly wide of the left post.
The gunners continued to pile the pressure on, minutes later, Granit Xhaka's fierce, low-driven shot was blocked well by Saints goalkeeper Gavin Bazunu.
Xhaka was once again involved when he laid the ball off to captain Martin Odegaard, who dragged his left-footed shot from the edge of the box just wide of the target.
Arsenal's efforts were rewarded in the 10th minute when Ben White made an overlapping run on the right wing and made a low cross to Xhaka who was waiting on the penalty spot. The Swiss international powerfully struck the ball on the half-volley into the roof of the net for his fourth goal of the season.
Gabriel Jesus nearly doubled Arsenal's lead in the 25th minute. The Brazilian twisted and turned among the Southampton defenders before driving a left-footed shot into the side netting.
Bazunu made a fantastic save to deny a second for Arsenal just before half time. Jesus ploughed a volley into the ground following a one-two with Odegaard on the edge of the box, but Bazunu parried it to safety.
The first major chance of the second half fell for Jesus on the hour mark after he was played through one-on-one with Bazunu but Mohamed Elyounoussi tracked backed and made a superb last-ditch tackle to deny the Arsenal striker.
Southampton equalise against the run of play
Southampton levelled in the 65th minute. Elyounoussi drove at the Arsenal defence, cut inside on his left foot and played a disguised through-ball to Stuart Armstrong who guided a first time, right footed shot to the bottom left corner.
The Saints gained momentum after scoring and made an attacking double substitution, bringing on striker Che Adams and former Arsenal winger Theo Walcott.
Martin Odegaard thought he regained the lead for Arsenal in the 79th minute. The Norwegian's first time finish was ruled out after it was confirmed that the ball went out of play before Kieran Tierney's cross, after the Scotsman made a powerful run down the left wing.
The game finished with neither team creating any clear-cut chances in the closing stages.
The result leaves Southampton in 15th, while Arsenal extended their lead at the top of the table but now sit just two points ahead of Manchester City after they beat Brighton 3-1 yesterday.
Player of the match
Mohamed Elyounoussi
The Norwegian winger's high work rate made it hard for Arsenal to keep the ball, as he made many tackles and interceptions including a last-ditch block to prevent a shot from Jesus in a one-on-one situation- a tackle which may have prevented Arsenal going 2-0 up.
Elyounoussi also played a key role in Southampton's equaliser. He made an aggressive run towards the visitors box and played a perfectly weighted through ball to Armstrong who finished cooly in the 65th minute.