United made a "seven-figure" bid for Lita which the Blades claim was accepted by their Coca-Cola Championship promotion rivals.

However they could not agree personal terms with the 24-year-old, who has recently completed a loan spell at Norwich, and Lita has confirmed he wants to stay with the Royals.

United are in the hunt for a replacement for James Beattie after letting their leading scorer join Stoke for a fee which could rise to £3.5million, but must now look elsewhere.

Reading director of football Nick Hammond said: "We did receive a private offer from Sheffield United for Leroy Lita last week.

"We always try to be open with our players regarding bids officially lodged by other clubs, so it was put to Leroy.

"However we were very pleased that Leroy firmly stated his desire to stay at Reading, and he will not be joining Sheffield United."

Lita scored his first goal of the season for Reading in last Friday's 4-0 home win over Watford after returning from Norwich where he netted seven times in 16 appearances.

Reading manager Steve Coppell added: "As I have said many times, I believe that all transfer business should be conducted 100% in private so I have no further comment."

Lita's rejection of the move to Bramall Lane will come as a blow to the south Yorkshire club following the exit of Beattie, who scored 34 goals in 65 appearances.

However, the club have released a statement on their website, www.sufc.co.uk, attempting to clarify the reasons behind Beattie's departure.

It read: "Sheffield United have just announced the sale of James Beattie to Stoke City (which) signals the start of a re-profiling of the squad which will ensure the club is in the best position to manage any eventuality that might arise in the future.

"The club is not immune to circumstances and needs to have a robust business plan, both on and off the field, to give the manager and team the best opportunity for long-term, ongoing success.

"The loss of parachute payments will correspond with a worldwide recession, and the chance to transfer our highest-paid player can only happen when a willing buyer puts in an offer.

"Whenever this bid came it would be difficult, both for the club and its supporters, but it had to be considered.

"With us still a Championship side and facing a massive drop in football income the wage cost of one player would have been 35% of projected budget.

"This difficult decision was made in the knowledge that we will not be offering new contracts until the end of the season and it is natural that players who perceive they are in the final years of their existing contracts will make repeated requests for continuing negotiation.

"Sheffield United's ambition in signing James - although he has been an exemplary professional and scorer of many goals - did not result in the immediate return to the Premier League that we had hoped for.

"The club is setting its stall out to assist the manager with a competitive squad and with an expenditure that will be realistic but does not put the club at risk.

"Our ambitions are the same but we are not immune from financial circumstances."

Meanwhile, former Blades defender Leigh Bromby has returned to Bramall Lane from Watford on loan until the end of the season with a permanent agreement in place.

Bromby, who left for the Hornets in January 2008, will provide cover for the injured Ugo Ehiogu.