ASSE face Paris Saint-Germain in the French Cup Final this month and were keen for Saliba to feature.
With the teenager unable to play for Mikel Arteta's men until the 2020-21 Premier League season, the two clubs have been locked in negotiations to allow Saliba to play one last match for the club.
But the two sides have failed to come to an agreement over a clause which could have seen Arsenal pay £2m if he started on July 24.
A St Etienne statement declared: "William Saliba had been training for several days with Claude Puel's group and was obviously very enthusiastic about the idea of finishing his course in Green with such a match.
"Alas, ASSE, which simply wanted the extension of the initial loan until July 24, could not find an agreement in the evening with Arsenal to allow the defender to properly prepare and play this meeting, the English club imposing absolutely unacceptable sports and financial conditions."