Tottenham chairman Daniel Levy had held out for a £40million offer for the Croatian midfielder, but the Spanish champions thought they had finally persuaded him to accept a package potentially worth £35million.
However, talks designed to finalise the deal on Friday apparently ended in acrimony.
Levy angered Madrid officials, including manager Jose Mourinho, by demanding an additional £2million at the last minute, reports the Sun.
Mourinho is seemingly now ready to call the transfer off, rather than meet Tottenham’s new demands.
That would disappoint Modric, who has set his heart on a move to Real Madrid, despite interest from Chelsea and Spurs’ desire to keep him.
A source close to the player said: ‘Luka is shocked by all of this. He is desperate for the move to go through and wants it sorted.’
Should Modric remain at Spurs, it would disrupt head coach Andre Villas-Boas’ transfer plans, as he wanted the club to use the money from the sale of the Croatian to sign at least one new striker and Manchester City winger Adam Johnson.
By Metro Webreporter