Rafael Benitez has turned down Liverpool's new contract offer after being told he will not have overall control of transfer activity or a stronger influence on the running of the club's academy.
The Liverpool manager disagrees with owners George Gillett and Tom Hicks over what his role should entail.
But the news comes at the worst possible time for the club, with the Reds to play Merseyside rivals Everton in the Barclays Premier League on Monday.
Benitez has steered Liverpool to the top of the Premier League, as they pursue a first title in the top flight since 1990, however Manchester United are currently hot on their heels and will go to the summit if they defeat Bolton tomorrow.
Benitez has less than 18 months remaining on his current contract, and has already indicated he is satisfied with the length of the new deal and the financial terms.
However, his determination to have the deciding say on key issues concerning his team has become all-important in the negotiations.
According to Benitez, he is being asked to defer to chief executive Rick Parry on transfer issues he would expect to have direct responsibility for, given Liverpool do not have a director of football.
He told the Liverpool Echo: "This is solely about being allowed to manage Liverpool Football Club to the best of my abilities as I see them.
"I believe that this club has the potential to improve - and I just want to be able to help this to happen.
"I will continue to do my job as manager and concentrate on the thing that our fans want me to focus on - winning trophies for them.
"From the first day I came to the club, I have only ever given 100% - and I will continue to do this."
The 48-year-old joined Liverpool in 2004 after a successful spell in charge of Spanish giants Valencia, and led his new team to Champions League glory in his first season.
He has gradually built a team capable of challenging for the Barclays Premier League title, but has strong opinions over the running of clubs.
He has cited leading European teams such as Ajax and Barcelona as examples where the boss of the first team can exert an influence on the running of the youth set-up, and Benitez wants to be directly involved in important decisions at that level.
Transfer policy is clearly another issue he feels strongly about, however, he is not confident in a system that will see Parry have the final say on bringing in players.
Benitez said: "The owners feel that the manager's decisions need to be subject to the chief executive.
"But I know that I am subject to results and to our fans and they are the best judges I will ever have."
Speaking earlier in the week, Benitez claimed he was baffled by reports he was on a collision course with the club's American owners.
At the time he stressed he had not had enough time to read over the contract and make any decision, however, today's development substantiated the content of the initial reports.
His refusal of the new deal will inevitably dominate the build-up to Monday's derby, but Benitez intends to focus all his thoughts on the game and will strive to ensure his players are not affected by his future.
He was keen to dismiss suggestions of a rift with the American owners, describing Hicks as "very supportive" and the contract talks as "positive and friendly".
That suggests this will not be the end of the matter, with club and manager now in a position where they will seek to address each other's issues with the terms of the tabled contract.Reuse content