Chelsea withdrew their offer for the 22-year-old Sporting CP midfielder, and now Paris Saint-Germain are close to signing him.
Ugarte and PSG reached a personal agreement last month after PSG made the Uruguayan international one of their top transfer targets.
Chelsea made a big offer to Sporting in an attempt to attract Ugarte to Stamford Bridge in order to bolster their central midfield, but the player and his representation resisted, pushing for a transfer to the French capital instead.
Moises Caicedo of Brighton and Declan Rice of West Ham are now thought to be the primary targets for new Chelsea head coach Mauricio Pochettino among the other selected players.
According to reliable sources, Chelsea withdrew from the agreement, and PSG is currently completing the terms of Ugarte’s proposed move, which will pay the player a larger salary than the one that the Blues offered him.