United were holding negotiations with Juventus and Dybala's representatives over a deal which would involve striker Romelu Lukaku moving in the opposite direction.
Lukaku is eager to leave United and agreed a deal with Juventus last week, meaning any deal hinged on whether Dybala would agree to move to Manchester.
But the 26-year-old's excessive wage demands, large agent fees and the sense that he would not be moving to Old Trafford for the right reasons have scuppered talks.
Dybala's representatives - led by his brother, Gustavo - were demanding in the region of £350,000-a-week from United as compensation for spending at least one season outside the Champions League.
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It is understood, meanwhile, that Ole Gunnar Solskjaer only wants to sign players who are invested in the club and who want to be part of a long-term project.
The breakdown in talks effectively kills off Lukaku's prospective move to Turin, though United remain in talks with other clubs, including Internazionale, over the Belgian.
Inter hold a long-standing interest in the Belgian, though are yet to submit an acceptable offer. The Serie A club's most recent bid of £54m was rejected by United last month.
United may choose not replace Lukaku if he does leave before Thursday's transfer deadline, following the emergence of young players such as Mason Greenwood during pre-season.
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