"The resignation was not accepted by the board of directors and the club are now considering legal action against both Grayson and Leeds."
The Yorkshireman, who started his career as a Leeds trainee, guided Blackpool to promotion to the Championship in 2007 after two years in charge.
As a player he made two senior appearances for the Elland Road club before joining Leicester City in 1992. A £1.3m move to Villa followed five years later.
"When the opportunity came to come here I couldn't wait to be involved as quickly as possible," Grayson told the Leeds website.
"It's a massive club and close to my heart, having played here before and supporting the club. The size and the ambition is obviously an attraction as well.
"I had a great time at Blackpool. I had a great rapport with the fans and the board. I certainly wouldn't have dropped down a division for any other club and I feel this is the next stage of my managerial career.
"I know there is an expectancy level and it's a challenge I'm looking forward to."
Grayson was installed as favourite for the job on Monday ahead of former Leeds coach Aidy Boothroyd and ex-assistant manager Gus Poyet.
Leeds began looking for their ninth manager in the last 10 years after relieving McAllister of his duties a day after his side lost 3-1 to MK Dons.
That was the Elland Road outfit's seventh defeat in nine matches, a sequence that has resulted in them sliding to ninth place in the table, 15 points adrift of leaders Leicester and 11 off the second automatic promotion slot.
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