With Chelsea having looked the most likely suitors for the Spaniard, this will have come as a major blow to Blues supporters, and now forces owner Roman Abramovich to look elsewhere in his search for a permanent boss next season.
Rafael Benitez has made a solid if unspectacular start to his Chelsea career that has seen the club rise to third in the Premier League, however their group stage exit from the Champion's League will no doubt be a concern for the London club's billionaire owner.
Here, we look at some of the possible candidates to become Chelsea boss next season:
Yes, his current position is purely on an interim basis, however it would be extremely unwise to discount Benitez from landing a long term role with the club.
After all, the Spaniard does have a number of advantages. Six years with Liverpool has provided the 52-year-old with plenty of Premier League experience; something that truly constitutes a rare commodity amongst world class managers at the moment. Two La Liga titles and a Eufa Cup trophy with Valencia, added to his Champion's League win with Liverpool are undoubtedly evidence of success, Abramovich will be more than aware that Benitez knows exactly what it takes to secure major trophies.
He also holds the obvious advantage of having the opportunity to prove himself to the Russian, having been given the rest of the season to show the Chelsea owner exactly what he is made of.
A poor recent run of home form, coupled with the Blues falling behind title rivals Manchester United and Manchester City, has left Benitez with a lot of work to do in order to improve his credentials.
The Spaniard has refused to comment on a long term position at the club, and sought to avoid questions relating to Guardiola's appointment at Bayern Munich after Chelsea's 2-2 draw with Southampton, on Wednesday.
However provided he guides his side to a successful second half of the campaign this year, Benitez must be considered a hot favourite for the role.
It will be six years this Summer since 'The Special One' departed Stamford Bridge, and since then he has continued to go from strength to strength.
Two Serie A titles, a Coppa Italia and a Champion's League winner's medal with Inter, have been followed by a La Liga trophy and the Copa del Rey with Real Madrid.
There are airs of discontent at the Bernabeu however as Real have slipped a total of 15 points behind rivals Barcelona, leaving their domestic season effectively over.
Mourinho has stressed a strong interest in returning to England, and it would make sense for him to come back to the club where he is adored by the fans.
Chelsea have an ageing squad that needs rebuilding in the Summer, however Mourinho has done it before and many see him as the only man that can do it again. Whilst apparently eager to take over from Sir Alex Ferguson after his retirement at Old Trafford, his hand may be forced sooner, should Real's season take a turn for the worse and Chelsea could once again be the perfect fit.
Klopp is the current manager of Bundesliga side Borussia Dortmund and has been since departing Mainz 05 in 2008. The side that knocked out Manchester United on the way to a shock Champion's League title back in 1997, had subsequently been suffering a sharp decline in fortunes until Klopp took over.
He has since gone on to create a truly world class side, players such as Mario Gotze, Robert Lewandowski and Marco Reus have helped take Dortmund to successive league trophies and the first ever league and cup double for the club.
Liverpool were linked with Klopp back in the Summer. However the German has since stated that his future lies in his home country, and after recently extending his contract with his current club until 2016 this looks set to be the case.
Klopp is also being cited by many as the potential successor to Germany head coach Joachim Low and could be looked at for the position as soon as 2014.
The Blues are known to be interested despite Klopps plans, and the lure of free reign to spend big and the opportunity to work in the most popular league in the world may prove too tempting to ignore.
The man most famous in England for getting David Beckham sent off in the 1998 World Cup, was himself an exceptional player, and after a long career with the likes of Atletico Madrid, Inter and Lazio, has gone on to excel in a managerial role with Atletico.
A little over a year since being appointed, Simeone has already won the Europa League and the Eufa Super Cup, in a league regularly dominated by Barcelona and Real Madrid the Argentine has so far this season managed to guide Atletico into second place, seven points clear of bitter rivals Real.
It was in the Super Cup victory that Simeone's side met Chelsea, beating them 4-1 in a display that truly emphasised the Argentinian's tactical awareness. Although not a popular figure in England, Simeone could well be just what Chelsea need in order to compete with their Manchester rivals.
After Brendan Rogers departed Swansea for Liverpool last year, many thought that their honeymoon period in the Premier League could be over, and that they would inevitably suffer from the well known 'second season syndrome,' that has plagued a number of top flight sides in recent years.
Instead, Swansea have improved under Laudrup and the form of summer signings Michu and Pablo Hernandez has helped them occupy a top half place in the league.
Laudrup's side play with pace and movement, this could help to add a more multi-dimensional side to Chelsea's play that could well see them fare better in Europe next season.
There is also a family connection involved, as Laudrup's brother Brian spent some time at Chelsea back in the late 90s, which may sway the former Real Madrid and Barcelona man's towards Stamford Bridge.
Whatever the outcome, Laudrup undoubtedly has a successful future in store, but whether the Chelsea owner would be willing to take a gamble on somebody so new to Premier League management is yet to be seen.
Long Shot - Gus Poyet:
With Skybet currently placing Poyet at 16-1 to land the role, this one is certainly worth watching closely.
Poyet is a huge fan favourite having spent four years at Chelsea between 1997 and 2001, winning both the FA Cup and the Cup Winner's Cup, long before Roman Abramovich's billions helped bankroll the club to their league and Champion's League successes.
However he has since gone on to build an ever managerial reputation of his own, Since joining Brighton and Hove Albion in 2009, Poyet has taken the Seagulls out of League One and firmly established them as a Championship club, they maintain an outside chance of claiming a playoff spot this season.
The Uruguayan led Brighton to knock a strong Newcastle United side out of the FA Cup and whilst Poyet is yet to gain experience in top flight management, his achievements in the lower leagues are worthy of both praise and consideration.
Stranger things have happened in football and Poyet's managerial career is worth watching closely, even if he doesn't land the big one this time around.
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