The 28-year-old had already undergone medical examinations and was pictured holding a Bayern shirt ahead of finalising his move to the Allianz Arena.
However, Fulham failed to hand Bayern the green light to complete the deal, with the Cottagers yet to snap up a replacement for the Portuguese midfielder.
After scouring the market for defensive midfield prospects, Palhinha emerged as a priority target for Die Rekordmeister late in the transfer window.
Fulham have been aware of the growing interest in their star player, who has caught the eye of several European heavyweights following a hugely impressive debut campaign.
The Cottagers were determined to hang on to the former Sporting CP man and had rejected a bid of around £45 million from West Ham United earlier in the window.
However, they softened their stance on the player’s future after he made it clear he wanted to join the German champions this summer.
While Fulham were reluctantly open to doing business, they refused to let Palhinha leave until they had first secured a like-for-like replacement.
They turned to Tottenham Hotspur midfielder Pierre-Emile Hojbjerg, who has been deemed surplus to requirements, but the player was uninterested in a move across the capital.
While Fulham were scampering for a potential replacement for Palhinha, the player was already in Germany completing the formalities required to get a deal done.
Only a green light from the Cottagers was missing, but it never came, which will be a massive blow for the player who had his heart set on representing the Bundesliga heavyweights this season.
Palhinha is not expected to leave Fulham this summer, and it remains to be seen if Bayern will rekindle their interest in the Portugal international in the January transfer window.
Meanwhile, Fulham are expected to announce the arrival of Alex Iwobi from Everton after parting ways with around £20m to get a deal over the line.
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