The Basque team announced that a deal had been agreed "in principle" for Alonso to fill a funding gap in their sponsorship after it lost €3.5 million of local government funding due to spending cuts.
The team's main sponsor, telecommunications company Euskaltel, filled that funding gap themselves for this season, taking their contribution to seven million of the team's nine million euro budget
However, it said that level of investment was unsustainable and it was announced in August that the team would be shut down at the end of the season should another sponsor not be found.
And with the breakdown in negotiations it appears as if the last hope to save the 19-year old team have disappeared.
"The negotiations between Euskaltel and the representatives of Fernando Alonso for the acquisition of the cycling team Euskaltel Euskadi on behalf of the Asturian driver, which began with an agreement in principle on August 31, have ended without an agreement," the team said in a statement.
"For Euskaltel it is sad news that after the hope generated by the agreement in principle, a definitive agreement has not been formalised to guarantee a professional future for the members of the team and to reward the fans that have been loyal until the last moment.
"We would like to explain the details of the negotiations, because we have done our part, with total honesty, but it is not possible because we need to respect the confidentiality of the negotiations.
"Having not achieved an agreement, Euskaltel is unfortunately obligated to restart an organised and responsible closure of the project."
Despite the uncertainty over the team's future, Euskaltel achieved their first ever victory in the team classification of a grand tour in the recently completed Tour of Spain.
However, cyclists contracted to the team for the 2014 season, including Olympic gold medallist Samuel Sanchez, had already been given permission to speak to other teams about finding a place in the peloton for next season.