The Daily Star says Blues billionaire owner Roman Abramovich vetoed a new one year deal for Lampard - who will be 36 next month.
The decision will be a huge blow for Lampard, who has been at Stamford Bridge for 13 years and is the club's record scorer with 147 goals.
LA Galaxy and New York City are both keen on landing Lampard, but the midfielder is unlikely to move abroad with wife-to-be, Christine Bleakley developing her TV career.
But Lampard's desire to go out on a high together with Rangers' plans to keep a tight grip on their finances may scupper any deal.
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