The Chile international looked set to move from his current club to Brazil but the transfer came to a halt because, according to Sao Paulo President Juvenal Juvencio, Napoli kept making changes to the deal.
Juvencio told Lancenet: "First they wanted €1.5m for an 18-month loan and we accepted. Then they wanted the same amount for a 12-month deal. Then they came back to us and asked to insert a clause which would allow them to recall him at any moment.
“I said I would only accept that if they then gave us back our money should they opt to recall him. That’s when the deal collapsed.”
The move is now off with the two clubs failing to reach any kind of agreement over the player who signed for Napoli from Universidad de Chile in summer 2012.
Vargas could still end up in Brazil by the end of the transfer window with Sao Paulo’s rivals Gremio reportedly interested in the forward.