Pacquiao is likely to revert to an original plan to fight Australia's Jeff Horn at a venue to be determined.
Pacquiao's long-time promoter Bob Arum told the newspaper that the proposed $38 million fight staged by the United Arab Emirates in April had proven to be "pie in the sky."
"When they contacted me, I told them it was pie in the sky, that this is crazy, it’s not going to happen," Arum said.
"Manny wanted to roll the dice. He rolled the dice and it came up snake eyes. If something is too good to be true, it's too good to be true."
Arum still held out the possibility of a fight between Pacquiao and Khan later this year, for "realistic numbers", stating that the suggested purse for the UAE fight had never been likely.
In the meantime, welterweight champion Pacquiao was likely to revert to an original plan to fight Australia's Jeff Horn at a venue to be determined, the Times reported.
Both Pacquiao and Khan had announced their fight within minutes of each other on Twitter last month.
"My team and I have agreed terms with Manny Pacquiao and his team for a super fight #pacquiaokhan #April23rd"," Khan tweeted on February 26. Khan, 30, has not fought since being knocked out by Mexico's Canelo Alvarez last May.
Pacquiao, 38, announced a brief retirement last year but made a successful comeback against Jessie Vargas in Las Vegas in November, saying he still felt like a youngster.
Pacquiao had said he was retiring to focus on his new role as Philippine senator, after winning elections last year on the back of his sporting fame.