Ancelotti met with Brazilian Football Confederation (CBF) representatives this week in London, where he promptly rejected their offer.
The Italian was expected to accept the Brazil post, even joking about the job with Real's Brazilian players.
But Ancelotti chose to reject the offer this week, reports La Gazzetta dello Sport, after becoming upset by the leaks coming from the CBF.
He was angry over the threat of souring his relationship with Real and president Florentino Perez. However, after meeting with Florentino, the ties remain intact.
Ancelotti hasn't rejected the Brazil job outright, but will not consider taking it on in June for their latest round of World Cup qualifiers.
Instead, he is prepared to return to talks with the CBF after the end of the season.