Reports in Germany said Isco had completed a medical and was poised to sign for the team that sits second in the Bundesliga, one point behind Bayern Munich.

The 30 year-old was released by Sevilla after just four months at the club in December and looked set for a new challenge in Berlin.

However, the anticipated switch broke down just hours before the deadline, which in Germany falls at 18:00 local time (17:00 GMT).

Both parties blamed the other, with Union sporting director Oliver Ruhnert saying in a statement posted on Twitter by the club: "We would have liked to see Isco play for us, but we have our limits.

"Today these were exceeded, despite our previous agreement, which is why the transfer will not take place."

Isco's management company, Gestifute, was quoted in German newspaper Bild as stating: "In the course of the talks, we had to realise that our negotiating partner was no longer willing to move within the framework originally discussed."

Union, which face Wolfsburg in a DFB-Pokal game on Wednesday (AEDT), has won its three Bundesliga games since the World Cup and winter break in its surprise title challenge.

Isco began his career with spells at Valencia and Malaga, before spending nine years with Madrid, leaving the Santiago Bernabeu at the end of last season.