Chelsea were expected to seal Pedro from Barcelona on Wednesday in a £21.1million deal.
Manchester United pulled away from the deal on Tuesday night with the 28-year-old Spain international keen on a move to London.
United manager Louis van Gaal and executive vice chairman Ed Woodward held more talks about the move on Monday but decided not to push through their initial interest.
Pedro was understood to be unimpressed by United’s pursuit after failing to be convinced that they really wanted him to join.
Manchester City and Chelsea have both been in contact with Barcelona for a number of weeks, however, the Premier League champions moved quickly after a weekend in which Jose Mourinho made it clear he needed improvements to his squad.
The Blues will pay £19million up front to the Catalan giants, an improvement on the £17m offered by United.
The World Cup winner, who will team up with friend Cesc Fabregas at Stamford Bridge, is expected to have a medical on Wednesday afternoon with Chelsea’s Spanish doctor Paco Biosca overseeing events.
Sportsmail understands Mourinho personally spoke to Pedro to convince the winger of his worth to his new suitors in order to seal the deal.
Pedro’s camp were unaware of United chief Woodward’s trip to Barcelona to try to get the deal over the line in what became a breakdown in United’s attempt for his signature.
A United source said that the club had decided to end their interest in Pedro and that the decision was made by Van Gaal.
They added: ‘Money was never an issue given the buyout clause. If it was clear cut the deal would have been done weeks ago.’
Pedro’s arrival will likely trigger the departure of Juan Cuadrado with Juventus waiting in the wings to sign the Colombian. His pace and work-ethic will also add greater protection to a defence that has come under scrutiny in the opening Premier League games.
United were in pole position to sign the World Cup winner after Woodward flew to Barcelona for further talks on Monday.
But Chelsea went toe-to-toe with their Barclays Premier League rivals, with Roman Abramovich particularly keen on signing the player.
Chelsea need to boost their own attacking options before the close of the summer transfer window following a miserable start to the new season.
Mourinho’s side were handed a 3-0 drubbing by Manchester City on Sunday after a chastening draw at home against Swansea in their opening game.

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