It had been reported that the Baggies were about to finalise a deal some time this week, but it seems that the club have withdrawn their interest with fellow free agent Nigel Reo-Coker now thought to be their preference.
The former Tangerines midfielder left Bloomfield Road in June after rejecting a bumper contract offer to stay following relegation to the Championship.
Vaughan had a number of Premier League teams looking at him throughout the second half of the 2010/11 campaign.
The frontrunners were always Albion and Sunderland.
However, now that the Baggies have pulled out of the deal - after the Welshman met medical staff at The Hawthorns - Vaughan is now expected to decide between a move to Molineux, the Stadium of Light or St Andrew's.