But the 25-year-old has now confirmed that he will be staying at Bramall Lane until the summer at least.
"We have spoken to Kevin Blackwell to say Matthew is fully committed to Sheffield United until the end of the season," Kilgallon's agent Paul Masterton confirmed.
"We have also informed Newcastle United about the situation.
"Matthew is keen to win promotion with Sheffield United, if that happens we will re-assess the options in the summer."
Masterton later told BBC Radio Sheffield that the defender could sign a new deal with the Blades.
He added: "It's not something we've ruled out and it's not really about the money.
"It's about picking the right club now for a defender who is coming hopefully to the peak of his career. He wants to be picking the right club to play at the highest level during the best years of his career.
"Hopefully that will be with Sheffield United because, bar status, they are a Premiership club in every other part of the build-up and the infrastructure that they've got. We'll just have to wait and see what happens. Hopefully Sheffield United will be up there and we can sit down and discuss it then."