Andre Villas-Boas wants the Brazilian striker to boost his attacking numbers, but Spurs' bid of just over £17million has been turned down by Internacional.
The 23-year-old, who played for Brazil in the Olympics and scored 24 goals in 48 games for his club in 2012, may now stay in Brazil until the summer.
Internacional's director Marcelo Medeiros told Globo Esporte: "Leandro Damiao won't leave, the offer was below what we wanted."
Medeiros added to Radio Guaiba: "He is under contract with Internacional and will remain our player."
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