The Austria international will see his contract expire at Bayern Munich at the end of the season and it appears that all negotiations are off.
It means the 28-year-old is set to depart when his deal is up in the summer with a host of elite clubs desperate for his signature.
Real Madrid were believed to be his first choice, while Barcelona are also in the race, with Alaba looking at Spain as his next destination.
Amid financial uncertainty and the Covid-19 crisis, neither Real or Barca have the necessary cash to stump up such a deal.
According to the Daily Star, that has allowed Chelsea and City to reenter the battle.
Both clubs are keen to sign the Austrian but were starting to believe that he would not pick the Premier League over La Liga.
Thomas Tuchel is a known fan as the Blues hunt an established defender to bolster their backline while his agent Pini Zahavi is a close pal of Roman Abramovich’s.
Though neither club would likely fork out £400,000-a-week, that total could be reached through a number of matchday bonuses.