In April, Pacquiao scored a points win over Timothy Bradley to regain the WBO welterweight title and avenge a highly controversial loss to the American in June 2012.
"We have a deal. On my end, it wasn't a hard deal at all," Arum told ESPN.com.
The 30-year-old Algieri, a former kick-boxer, has a 20-0 professional record and won the WBO light-welterweight title last month by a split decision against Russia's Ruslan Provodnikov.
"Manny is 100 percent for it," Arum added. "I told him I was coming along with it. He said Algieri seems like a nice young man and he saw his fight with Provodnikov.
"Manny said he thought it would be a good fight and he was OK with fighting Algieri."
Pacquiao has not scored a knockout since stopping Miguel Cotto in November 2009, and was himself knocked out at the end of the sixth round by Juan Manuel Marquez in 2012 in his first outing after losing to Bradley the same year.
The 35-year-old, who has won world titles in a record eight weight divisions, cooled retirement talk with wins against Rios and the convincing defeat of Bradley in the April rematch.
(Reporting by Sudipto Ganguly; Editing by John O'Brien)
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