Manchester City are ready to end their interest in Fred, sources have told ESPN FC, with Manchester United now reportedly keen on the midfielder.
The Premier League leaders were keen on the Shakhtar Donetsk player in January but, with the Ukrainian side still in the Champions League, the move was not completed.
A deal was expected to be resurrected this summer with City still keen on buying a holding midfielder as a replacement for Yaya Toure, who is likely leave at the end of the season when his contract runs out.
But ESPN FC has been told that City have been scouting other options and the 25-year-old may no longer be their top target.
Manchester United have also been linked with a move for Fred and Shakhtar chief executive Sergei Palkin has confirmed that he will leave at the end of the season.
"Fred will leave in July," he said. "If he does not go to Manchester City, he will go to Manchester United.
"Fred is ready to play in the strongest league [in Europe]. He is not only a very good player but also a very good professional.
"I would like him to have one more year in our team, but he is ready for a stronger league."
Fred told ESPN Brasil that he is keen on a move to the Premier League and confirmed City showed a strong interest in him in January.
"There was a process now in the winter window, and [City] even made a proposal for Shakhtar, but it didn't happen because of the Champions League, since I could not play for another team. But there was, yes an offer," he said.
"Guardiola did not talk to me, but there were people from City who talked to my agent. Unfortunately it did not work out, but now I'm focused here, out of the window we try to forget and focus on football.
"In the middle of the year, we wait to see what will happen.
"City are a great team, I would be happy to play there or at Manchester United as well, at Chelsea, Arsenal, clubs of great tradition in Europe and England.
"It is the best league in the world, I have no doubt, and I believe that my football would evolve."