The 31-year-old forward signed a short-term agreement with the Championship club at the start of the season and his form has won over supporters.
The Senegal international has scored four goals in 13 starts including a goal to help eliminate Southampton from the Capital One Cup on Tuesday evening.
But the two parties are stalling over a longer-term deal amid suggestions Diouf was expecting a significant pay rise after proving his worth.
"Dioufy loves it at Leeds," said the player's agent Willie McKay, quoted in the Daily Mail.
"He took a massive wage cut to join and was hoping something could be resolved down the line that reflects his performances."
Rival Championship clubs are now believed to be alert to the possibility of swooping for the former Liverpool man.