Yann M'Vila has told Sunderland he no longer wants to rejoin the club in January and the three-year deal which had already been agreed has now been scrapped.
Black Cats boss David Moyes and chief executive Martin Bain have taken the decision to call off the transfer as they do not want to sign any player who does not want to be at the club.
M'Vila spent last season on loan at the Stadium of Light and a deal to re-sign the midfielder was already in place when Moyes arrived in July.
They could have then paid Russian club Rubin Kazan £8million for the former France international on deadline day in August but refused to meet what they thought were unreasonable demands, especially as he was available on a free transfer in January.