The Mirror says the controversial Senegalese striker agreed a six-figure pay-off from Ewood Park to make himself a free agent and clear to talk to Leicester City.
Diouf is also wanted by West Ham, but will consider all offers, including those from the US and Qatar, before making a decision.
Rovers' under-pressure chief Steve Kean was delighted to see the back of Diouf, who was sent into exile with Rangers last season and returned only to clash with the club's management once again.
Gers boss Ally McCoist may also be interested in Diouf - if he can find some cash.
But Diouf pocketed such a large sum from Rovers that it may be better for him to now move abroad for tax reasons.