This day in history of Ronaldo
Real agreed the signing of Milito on a four-year contract last week but his planned presentation was postponed from Friday after the club said they needed more time to carry out extra medical tests.
On Monday, Real offered the player a one-year loan deal instead but failed to reach an agreement.
"After carrying out exhaustive tests, Real Madrid's medical team believe ... the player's maximum performance cannot be guaranteed over the next four seasons," Real said in a statement.
"During talks with the player's agent Real Madrid proposed a one-season loan but no agreement was reached.
"With great regret, in sporting and human terms, Real Madrid reject the signing of Gabriel Milito. We wish him the best for the future."