Panathanaikos have confirmed earlier media reports that Osasuna striker John Aloisi - a target for Portsmouth - has failed his medical at the Greek club.
Striker Aloisi is unlikely to make a return to Fratton Park
The Australian international had signed a three-year deal last week.
However, Greek press reports claimed that a problem with the 29-year-old's knee came to light during his medical.
"After medical examinations were made, Panathinaikos has decided not to complete the signing," read a statement released by the club.
Premiership side Pompey were keen to bring him back for a second spell before he opted to move to Greece.
Aloisi, who is available on a free transfer, also had interest from Manchester City as well as sides in France, Spain and Italy.
Osasuna were keen to keep hold of the player, who has also been chased by fellow Spanish side Celta Vigo and Serie A clubs, including Parma.
But Aloisi is keen to play Champions League football and win trophies with Panathinaikos, who have been Greek champions 19 times but finished a point behind winners Olympiakos last season.
Portsmouth chairman Milan Mandaric had earlier warned Aloisi that he would not break the bank to bring him back to Fratton Park, with reports suggesting that he wanted £30,000 a week.
Aloisi joined Pompey from Cremona for £300,000 in August 1997 before he was sold to Coventry for £650,000 just over a year later.
He was one of a quartet of Australian players signed by the then boss Terry Fenwick on the recommendation of Pompey chairman Terry Venables, who was coach of Australia.
Craig Foster, Hamilton Thorp and Robbie Enes completed the quartet but Aloisi has become the biggest name of the four.
He scored 26 goals in 60 league appearances for Pompey before he was signed for Coventry by Gordon Strachan.
Aloisi struggled in his two-and-a-half years with the Sky Blues in the Premiership, making only 18 starts and 23 substitute appearances, in which he scored 10 goals.
He joined Osasuna in July 2001 for £1.2m and has scored 27 goals in 118 appearances for the Spanish club.
Aloisi has been a consistent scorer for the Australian national team, scoring 21 goals in 34 appearances for the Socceroos.
His performance at the Confederations Cup tournament in Germany put him in the shop window after scoring twice against both the hosts and Argentina.