Michael Olise has chosen to join Bayern Munich with Chelsea pulling out of the race to sign him, talkSPORT understands.
The Blues had been in conversations with Crystal Palace for an agreement for the winger.
However, Olise has now opted to join the Bundesliga side and a deal is expected to be agreed.
A release clause in his contract at Selhurst Park means the winger is available for a fee of £60m.
Palace will refuse to sell any of their coveted trio Marc Guehi, Olise or Eberechi Eze for less than £60m.
Enzo Maresca's team decided to withdraw from the initiative because they considered that the finances were out of their reach.
Instead, Chelsea plan to reward their existing players while also looking for other attacking options.
The west London side are understood to be looking to add two attacking players to their squad this summer and are confident an alternative to Olise will be found.
talkSPORT understands that they are also in talks with Aston Villa for Colombian forward Jhon Durán, 20 years old.
Manchester United had also been linked with Olise, however they were also unlikely to shell out the £60m for the player.
Olise previously spent time in the Blues academy from 2009 to 2016 before being signed by city of manchester. He didn't make his professional debut until he moved to Reading a year later where he lit up the Championship.
The 22-year-old has since become a Premier League regular at Selhurst Park, and his ten goals during the 2023/24 season are his best yet.