West Ham will no longer take full control of the Olympic Stadium in Stratford after the 2012 London Games, with the Olympic Park Legacy Committee (OPLC) expected to announce the collapse of the deal on Tuesday.
The OPLC board has been alarmed by the ongoing legal dispute with Tottenham about the decision to give the Hammers preferential bidding rights and has now come to the conclusion that the Olympic Stadium will remain in public ownership.
Either West Ham or Tottenham could still move into the stadium after the 2012 Olympics but they will only be tenants rather than possessing full ownership of the site - paying around £2 million a year in rent to lease the stadium.
That represents a less attractive long-term prospect for both clubs, though the OPLC will move forward with opening a new tender process to find an anchor tenant for the site in East London, with proposals needing to be submitted by January.
The Hammers may still return with a new bid, as there remains a fund of £50 million set aside to convert the 80,000-seater stadium to a 60,000 capacity venue after the games, which will be capable of hosting Premier League football and major athletics events.
Tottenham and Leyton Orient both contested the original decision to give West Ham preferential bidding rights, and the latest hearing in Spurs' attempts to seek a judicial review of the original decision was due on Tuesday.
Last week, Mayor of London Boris Johnson offered Spurs a financial package to help redevelop White Hart Lane in a bid to dissuade them from taking further action over the Olympic Stadium, but the North Londoners appear intent on pursuing legal action.