Gaddafi already owns a share in Italian giant Juventus and reports had suggested that he was ready to make a move into The Premiership.
Palace chairman Simon Jordan confirmed that he would listen to offers from Gaddafi - but now that seems unlikely.
It had been reported that Gaddafi along with sons Muhamar and Saadi - who plays for Perugia in Italy - were looking at the prospect of buying into Palace, but this has now been denied.
"Mr Gaddafi had been informed about the rumours that bounded him to a possible interest to buy Crystal Palace, but he knew nothing and he isn't involved in this situation," said the spokesman.
Meanwhile, Saadi has confirmed his future lies with Perugia after he agreed a new one-year deal.
Following Perugia's relegation he had been linked with a move away, but he has now joined the club for pre-season training.
