Hodgson May Resign To Fasttrack Job At Anfield
But Cottagers owner and chairman Mohamed Al Fayed is digging in his heels because he does not want Hodgson to go.
Fayed does not believe that £2.5m - the compensation clause written into Hodgson's 12-month rolling contract - is sufficient for a manager who took the club to their first European final last month and has been strongly linked with the England position.
It is understood Liverpool and Fulham have had discussions about the London club taking a number of young first-team fringe players from Merseyside to Craven Cottage to force through Hodgson's switch rather than pay a flat fee.
Talks have broken down over which players should be included in the deal and sources say Hodgson might have to resign in order to take over at Anfield.
Hodgson has already told the Anfield club that he wants to take his Fulham assistant Mike Kelly to Liverpool.