The new deal would have seen the Spaniard earn just under £4million-a-year and would last until 2012.
Benitez is keen to get the same deals as Arsenal boss Arsene Wenger and Manchester United gaffer Sir Alex Ferguson who earns £4.5million-a-year.
Benitez wanted a five-year deal, but joint owners Tom Hicks and George Gillett did not agree to that, according to News of the World.
