Reports in the Spanish press claimed Atletico were due to announce the signing of the 19-year-old imminently after agreeing to pay his €120 million (£107m/$135m) release clause.
In doing so, Los Rojiblancos would be signing one of Europe’s most sought-after young talents, with the likes of Manchester City, Manchester United, Paris Saint-Germain and Real Madrid linked with Felix's signature in recent months.
Goal reported last week that Atletico were hopeful of convincing the youngster to move to the Wanda Metropolitano with the promise of earning more first-team opportunities than he would at rival clubs.
However, Benfica have moved swiftly to deny the rumours while reiterating that the release clause is still active for any club willing to meet its value.
“In view of the set of news published in these last hours, Sport Lisboa e Benfica clarifies that it is false that any negotiation process is currently under way regarding a possible transfer of player Joao Felix,” read a statement on Benfica’s website.
“The conditions for its negotiation are public and known, taking into account the termination clause defined in the amount of 120 million euros.”
Benfica have also angrily denied reports emanating from the Portuguese media claiming that agent Jorge Mendes would profit from the deal.
It was claimed that Mendes would take a 30 per cent commission on the transfer, earning him around €36 million (£32m/$40m).
“More serious, and that deserves our most vehement repudiation and denial, is the false news that refers to negotiations that involve commissions of 30% and which, unfortunately, was echoed in Portugal by the newspaper A Bola, with intentions and goals that we do not know at all,” read the statement.
“We repeat: this information is totally false, absurd and has clear intentions for the reputation and dignity of Benfica.”
Felix enjoyed a fine breakthrough season for the Portuguese giants, who he joined as a 16-year-old in 2015 after being released by rivals Porto.
The forward scored 20 goals and laid on 11 assists in 43 matches across all competitions as Benfica claimed the Primeira Liga title and reached the quarter-finals of the Europa League.
His performances earned him a call-up to the senior Portugal side and a first cap in the Nations League victory against Switzerland earlier this month.