Rafael Benitez has rejected the terms of the contract which was offered to him this week, according to a report.
The Spaniard has refused to commit to the deal because of a disagreement with owners George Gillett and Tim Hicks over his level of control.
Benitez told the Liverpool Echo newspaper: ‘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.
It was suggested he was locked in a power struggle with Hicks and Gillett over the terms of his proposed new contract.
There were claims Benitez had demanded complete control over transfers and more say in the running of the club’s youth academy
Benitez feels that he should be given more input into the club’s academy and is keen to see more home-grown talent emerge.
Steven Gerrard and Jamie Carragher both came through the ranks at Anfield and the Spaniard is keen to see more youngsters emerge on Merseyside.
He said: "I believe the academy is a very important part of the future of the club. The length of the contract was already agreed and this showed my long term commitment to the club.
"I know the academies of Ajax, Real Madrid, Barcelona, AC Milan and Valencia and they are producing players regularly.
"The way the system works there means the manager has an input into development and I think this could be the way forward here and we would hope that this would help us make better use of local talent."