Chelsea had agreed a £34.5m deal for the striker, enabling Gallagher to move in the opposite direction for the same fee on a five-year contract.
Omorodion’s departure would have meant Atletico needed a replacement and they had agreed an £82m deal for Man City’s Alvarez.
However, Omorodion’s move is now off following contractual issues, with Chelsea and Atletico now working on a return to London for Joao Felix, who spent time on loan at Stamford Bridge in 2023, to try and solve the transfer puzzle.
The Blues have already added Kiernan Dewsbury-Hall, Filip Jorgensen, Omari Kellyman, Aaron Anselmino, Renato Veiga, Caleb Wiley, Marc Guiu and Tosin Adarabioyo during this transfer window,
A deal has also been done for Palmeiras teenager Estevao Willian, who will not arrive until next summer.
Omorodion scored eight goals in 35 LaLiga appearances last season while on loan at Deportivo Alaves.
Chelsea did not find a consensus with Gallagher over new contract terms to keep him at Stamford Bridge and the midfielder completed the first part of his Atletico medical last week, also visiting the club’s Metropolitano Stadium.
Two other top-six Premier League clubs asked Chelsea about Gallagher, who rejected a move to Aston Villa after a bid was accepted while there was also interest from Tottenham.
Meanwhile, Atletico were set to pay £64m up front (€75m) with a further £17m of potential add-ons (€20m) for Alvarez, which would have been a record sale for City and a huge profit on the £14m they paid River Plate for the Argentina forward in January 2022.
Alvarez has made 103 appearances for City since arriving at the Etihad Stadium two-and-a-half years ago, scoring 36 goals.
The Argentina international won two Premier League titles, as well as the FA Cup, Champions League, Super Cup and Club World Cup titles all in 2023.
