Sporting director Max Eberl confirmed the breakdown at Friday's press conference to unveil new signing Ismael Saibari.
"Aston Villa contacted us about João Palhinha, that's true. But we won't find an agreement with Aston Villa," Eberl said.
Aston Villa had wanted to take the 31-year-old on loan with an option to buy, while Bayern Munich have insisted on a permanent sale, unwilling to accept another temporary arrangement for a player who has struggled to make an impact since his move from Fulham.
Palhinha and Villa are understood to have already agreed personal terms, with the Europa League winners' interest gathering pace in recent days before the collapse. Bayern paid around €51m to sign him from Fulham in 2024, and though the club is prepared to accept a significant loss on that fee, they want the transfer to be final rather than risk having the midfielder return again next summer.
The Portugal international spent last season on loan at Tottenham, where he made 45 appearances, scored seven goals and added two assists, helping Spurs survive relegation on the final day of the season.
Palhinha now remains in limbo at Bayern alongside two other players surplus to requirements, Sacha Boey and Bryan Zaragoza, with Eberl making clear none of the trio figures in his plans for the season.
"We're also not in a position where we have to do everything other clubs try to push on us," Eberl added, when pressed on whether Bayern might soften their stance before the deadline. Benfica have also been credited with interest in Palhinha, who made only 25 appearances during his sole season in Bavaria, five of them the full 90 minutes, having found first-team opportunities hard to come by even before his loan move to England.
Asked whether there was a deadline for resolving the situation, Eberl smiled and pointed to September 1 at 8pm, the closing moment of the transfer window, adding that talks over all three players' futures continue without resolution for now.
"The transfer market after a World Cup is different from usual, but no less unpredictable," he said. "We've still got almost two and a half weeks. We communicated clearly from the start, both internally and externally, what the situation is."
Eberl stressed that any exit ultimately requires agreement between three parties — the two clubs and the player — and that, for now, no such agreement exists for any of the three departure candidates.