The Brazilian international was widely expected to reject a move to the Emirates Stadium to sign for Juventus.
The Zebras had seemingly tied up a deal which would offer the Florence outfit Marco Marchionni as well as a substantial cash amount.
But winger Marchionni's agent, Bruno Carpeggiani, has revealed that Fiorentina would not meet the player's wage demands.
"Unfortunately, nothing will be done," Carpeggiani told Gazzetta.it.
To resurrect the deal, Juve may now have to find close to £20m to buy Melo outright.