Panesar signed a new deal with his county side Northants in August
Monty Panesar will not now play for Sri Lankan side Bloomfield ahead of the tour to India, the England and Wales Cricket Board has confirmed.
The 26-year-old was set to play for the club for a month to gain experience of playing on sub-continent pitches.
But it is thought that Bloomfield asked for a fee of £7,500 from the ECB, a demand which was rejected.
Panesar is now likely to join the England Performance Programme in India from mid-November instead.
An ECB statement said: "Monty was due to travel to Sri Lanka on 2 November to play a series of games for the club to get match practice ahead of joining the England squad for the forthcoming Test Series against India.
"It is now likely that Monty's preparation will be based around the England Performance Programme which includes a high performance camp in India."
The ECB is thought to have originally agreed to pay Bloomfield a donation of £500 for taking Panesar for a month, as a contribution to the club who are looking to rebuild their clubhouse.
A similar donation was made to South African side Highveld Lions when Steve Harmison turned out for them last winter.
But the ECB is believed to have received an email from Bloomfield earlier this week asking for a fee of £7,500, saying the ECB would benefit more than the club from the deal.
The ECB is still looking at a couple of options regarding Panesar gaining some experience on sub-continent pitches, but it is more likely he will join the performance squad.
The first Test against India begins in Ahmedabad on Thursday 11 December.