The Israeli international, 21, had appeared close to sealing a switch to the Serie A club worth around €25m plus bonuses, only for strict Italian eligibility rules to derail the deal at the CONI medical stage.
Inter Milan president Giuseppe Marotta confirmed the move would not proceed after Khalaili was denied clearance by the Istituto di Medicina e Scienza dello Sport, the body that carries out fitness assessments on behalf of Italy's national Olympic committee, with reports in Italy citing cardiac concerns flagged during additional testing.
Marotta said the decision rested entirely with CONI's medical panel rather than Inter's own staff, who would have been willing to proceed, adding that privacy rules prevented him from disclosing further details.
Khalaili, who joined Union Saint-Gilloise from Maccabi Haifa in 2024 for around €6.5m, featured heavily in the video published by the Belgian champions confirming his return, in which he was also interviewed by the club.
"I'm always focused on my career and I will continue to give my best. I feel good, I feel healthy, I feel perfect. I'm ready to play and train hard to give my best, 100 per cent. In the last two years I've played 99 matches, almost all of them for 90 minutes. I feel very good, at my peak," he said, in comments widely read as a pointed response to Inter.
Union Saint-Gilloise, who had been set to bank one of the most lucrative sales in the club's history, will hope to find an alternative buyer for the winger, who has 16 caps for Israel and played a key role in the club's Belgian title and cup double last season.
Inter, who had viewed Khalaili as their preferred replacement for Denzel Dumfries following his move to Real Madrid, must now turn to alternative options at right wing-back, with Strasbourg's Guela Doue among the names understood to remain on the club's shortlist.