The Daily Mail says te full-back's proposed £11million move from Albion to Palace on January deadline day was called off after medical examinations revealed a torn meniscus.
Ferguson had an operation to repair the knee this week and will be further assessed at the end of the month. He could yet play a role in the Championship run-in for Slavin Bilic's side should his rehabilitation go well.
However, the 19-year old is out of contract in the summer and has indicated he is unlikely to agree new terms to remain at the Hawthorns.
Palace are among a number of clubs monitoring Ferguson's recovery and may yet make a revised offer to West Brom between now and the summer.