Salgado, who was also believed to be a target for Manchester United, is out of contract at the season's end and negotiations on an extension have stalled. He will be free to negotiate pre-contract agreements with any club he wishes from the start of January.

Madrid's president, Florentino Perez, is said to have told Salgado: "If I were your father I'd advise you to go."

The report about Salgado, who has just turned 28, joining Chelsea was broadcast by Cadena Ser. It claimed that he had been offered a five-year contract worth £2.6m a year after tax. He would also receive a signing-on fee of £2.6m. Madrid had made Salgado an after-tax offer of around £1.4m a year, less than a quarter of what the team's galacticos earn.

However Salgado's agent Gines Carvajal said there was no truth in the report. He added: "Because negotiations with Madrid have encountered some difficulties these kind of stories are bound to emerge, but it's not true at all.

"Seeing Roman Abramovich is the only one with any money, people immediately assume everyone is going to Chelsea - they even said Zidane was going. I assume Madrid will make a statement soon and we will wait for that."

Madrid yesterday refused to comment ahead of Monday's announcement.

"If we get to the end of this week without an agreement, discussions will be put on hold until May," Perez said.

"But it is true that if we do not agree before the end of this week it's difficult to see the player stay.

"We have made the biggest possible effort to make sure Salgado stays because we are convinced of his worth on the pitch but if he were to receive a bigger offer we would understand if he left.

"Real Madrid cannot offer every player what other clubs can -- if we did we would have no budget left. Players must balance that against what we offer in sporting terms. Zidane and Beckham lost money to come because of what we offer in football terms."

Chelsea and Manchester United both refused to comment.