Colombian champions Once Caldas would not release Osorio, the Fenafuth said four days after they named him as their new coach to see them through the 2014 World Cup qualifiers.
"For reasons of incompatibility that he could not resolve, Osorio cannot be appointed as new coach of the Honduran national team," a Fenafuth statement said.
The Fenafuth had named Osorio on Wednesday as successor to Mexican Juan de Dios Castillo, who resigned after steering Honduras to victory in last month's Copa Centroamericana in Panama.
Honduras have a friendly scheduled for Wednesday at home in the city of La Ceiba against Ecuador, now coached by Colombian Reinaldo Rueda who steered the Central American country to the 2010 World Cup finals.
"I feel privileged that they should have thought of me as the right person to lead Honduras's football. I was convinced it was a great opportunity but Once Caldas won't let me go," Osorio was quoted as saying by Colombian daily El Tiempo.
Osorio has a contract with Caldas until June 30 and the Fenafuth said they could not wait for him until then. They needed to find a coach immediately to prepare the team for the Concacaf Gold Cup in the U.S. in June.
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