"Sadly, he has told us that he will not accept our offer of an improved and extended contract because he wants to leave."
Ricky Parry added: "We desperately want to keep Stevie and we've told him we don't want him to leave.
"However, in rejecting our offer of a new contract he has indicated he wants to go."
It will now be a bidding war between Chelsea and Real Madrid, with a new British transfer record expected.