"Finally after long negotiations, we can announce that Fabricio Coloccini will not join San Lorenzo," said the club on Twitter.
"It was not possible to obtain the Newcastle player, and therefore the club will look for an alternative to strengthen the defence."
Central defender Coloccini had stated his intention to return to Argentina having spent a loan spell at San Lorenzo from AC Milan over a decade ago.
He joined Newcastle from Deportivo La Coruna in a £10m deal in 2008.
The player's dad Osvaldo, a youth coach at San Lorenzo, had earlier insisted his son was keen to leave Newcastle to return home.
Osvaldo said: "The most difficult thing for Newcastle is to let him leave because they have already sold an important striker – on top of that he is the captain, an example, an idol and in a city that greatly loves him. "
"It would be nice for the two of us to be at San Lorenzo, it is the club we love. Fabricio is dying to return, but is trying to make a graceful exit."