Newly promoted Albion had agreed to pay Town a club record £3.5million for the Iceland international - only to find themselves faced with some tough negotiating to satisfy his personal terms.

And in the latest example of football's financial state, defender Hreidarsson would have needed him to take a substantial drop in wages to step up from the Nationwide League.

It is understood 28-year-old Hreidarsson is on around £15,000 a week at Portman Road but that does not fit within Albion's wage structure.

Albion manager Gary Megson spoke of his disappointment and claimed Hreidarsson had been put off by the prospect of a tough season with the Baggies, who are favourites for relegation in their first season of Premiership football.

He told the Express and Star: 'I've been told he's not coming because he doesn't fancy another relegation battle. That was the reason given by his agent.

'I've wanted Hreidarsson for a long time, but it's not going to happen unless he has a change of heart.

'I showed him around the ground yesterday and he seemed fine. So this has come as a bit of a surprise. What can I do? I can't force him to come.'

Ipswich chairman David Sheepshanks told his club's website: 'Hermann came to see the manager, George Burley and myself earlier after considering the move to West Bromwich Albion and said he would prefer not to make the move.'

Manager George Burley added: 'It was with great reluctance that we accepted West Brom's offer for Hermann in the first place and the only reason it was accepted was because of our financial restraints.'

The only alternative available to Albion is to make a one-off payment to Hreidarsson, but that is thought to be unlikely.

Their desperation to add another couple of players before Saturday's visit to Manchester United is unlikely to tempt the cash-conscious Midlanders to negotiate any deal that would wreck the harmony that exists in the dressing room.

Hreidarsson had been a target of Megson for some time. Earlier the manager said: 'Hermann has considerable Premiership experience and I consider he will be an asset to Albion.'

The agreed £3.5m fee was around £1m less than Ipswich paid Wimbledon for the player two seasons ago. Hreidarsson's continued stay at Portman Road, meanwhile, could hasten the sale of Republic of Ireland midfielder Matt Holland, who is a target of Aston Villa manager Graham Taylor.