Milan vice-president Adriano Galliani remained in Sao Paulo to discuss a potential 10million euro deal with the striker's boyhood club, having finalised the sale of Alexandre Pato to Corinthians on Thursday, but a satisfactory financial arrangement could not be agreed.
Following Sunday's 2-1 victory over Siena, Galliani told acmilan.com: "All negotiations to sell Robinho are over, he has been withdrawn from the market.
"He wanted to go back to Santos but neither Robinho nor Milan could reach a financial agreement with the Brazilian club.
"I called president (Silvio) Berlusconi to let him know and we are both happy that the player will stay. Robinho is happy too as he didn't really want to leave Milan, but to return home.
"He has been withdrawn from the market and we are left with five strikers."
With the Brazilian set to remain at the San Siro for the rest of the season, Milan are less likely to be able to finance a move for Manchester City striker Mario Balotelli or Didier Drogba of Shanghai Shenhua.
Robinho, who moved to the San Siro in 2010, has struggled to make an impact in Massimiliano Allegri's first team this season, scoring only two goals in 11 league appearances.
Following Pato's decision to join the Club World Cup champions for 15million euros, the 28-year-old will now compete with Stephan El Shaarawy, M'Baye Niang, Giampaolo Pazzini and Bojan Krkic for a starting berth.