Despite asking the League to reconsider its right to challenge the deduction, Pinnacle's Tony Lynam had told BBC Radio Solent last week that it "remained totally committed to the takeover".
However, Le Tissier has confirmed that the group has now withdrawn from negotiations - amid fears that the club, relegated from the Championship last season, may now be only days away from going out of business.
"We've been trying ever so hard but we've been banging our head against a brick wall," Le Tissier told BBC Radio Solent.
"I'm very sad, but hopeful that Mark Fry can find someone to take over the club. Everybody's worried, we've all been working very hard but it's getting to the point where it's very desperate."
Fry stated last Friday that there were two other interested parties, and that he was waiting to hear from a Swiss consortium.
However, he hinted that if no bids were forthcoming by the end of this week, he would have to consider winding the club up.
A statement issued on behalf on Mark Fry in response to Pinnacle's withdrawal read: "We remain hopeful that a sale of the club will be completed in a short period of time.
"It is a complex transaction which involves numerous stakeholders and a satisfactory solution for all parties is not simple to achieve.
"It is positive news that the football club should be in a position to pay the wages this week.
"We are working to a very short timeframe but wish to reassure everyone we are working round the clock to ensure the club's survival."
Saints' parent company Southampton Leisure Holdings plc (SLH) has been in administration since April, and Saints had hoped to avoid a points deduction as SLH was in administration - not the club.
But a League investigation by "independent forensic accountants" found that the football club and SLH were "inextricably linked as one economic entity" and applied its mandatory 10-point penalty, which will apply from the start of next season in League One.
Once a club has entered insolvency proceedings, the Football League must approve any takeover for the club's League share to be returned, allowing them to play in the League and its associated competitions.
Last summer, the League refused to allow Rotherham, Bournemouth and Luton to begin the season unless they accepted points deductions following spells in administration.
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