Quique Sanchez Flores is set to be named new manager of Watford.
The Watford Observer says negotiations over a new deal with Slavisa Jokanovic have collapsed.
Sources close to the 46-year-old, who took charge in October and guided the Hornets to promotion to the Premier League, claimed reports that he was offered £1,000 a week extra on his current deal were correct. His current contract is believed to be worth around £400,000 a year.
It is understood the Serbian was seeking a significant increase on the salary offered and was also seeking a three-year contract.
Watford had hoped to reach an agreement but were not willing to match the demands, which would have seen Jokanovic earn more than £2 million a year.