Palmeiras will not sign Andrey Santos on loan after failing to agree terms, reports the Evening Standard.
The Brazilian midfielder joined Chelsea during the January transfer window from Vasco da Gama.
However, Santos was unable to obtain a work permit and Chelsea decided to loan him out.
Palmeiras wanted him for the full Brazilian top-flight season, which starts in April and ends in December.
The Blues wanted a £1.3 million break clause in the loan deal. It would allow them to have Santos for pre-season in the summer if they so desire.
The 18-year-old would be allowed to play at the under-20 World Cup in May due to the clause.
However, Brazilian Championship A Series defending champions Palmeiras became frustrated and pulled out of negotiations.
Chelsea believe the midfield sensation can make an immediate impact in Graham Potter’s side.
He captained his country as they won the South American Under-20 Championship this month.
Santos scored a joint-top six goals during the tournament and Chelsea had hoped it would boost his work permit chances.
Foreign players require a certain number of Governing Body Endorsement points to play in the Premier League due to post-Brexit rules.
Santos missed out on obtaining a permit by one point, and the Blues have to loan him out until the summer.
Other Brazilian clubs were also linked with a move, but Vasco are the only club willing to agree to their loan terms.
The deal could be agreed upon in the coming days as the teenager needs to have his immediate future sorted out on time.
Chelsea have high hopes for the central midfielder and will be keeping tabs on his progress.
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