This surprising turn of events comes after contract talks took place between the 29-year-old and Bayern in recent weeks.
Thiago was on course to extend his deal, which runs until 2021, and all the main details had been agreed.
But suddenly the Spaniard backed off and withdrew from negotiations without giving a clear reason.
According to SPORT BILD, Thiago feels that this is his last chance to go to another top club abroad.
Thiago has spent seven seasons at the Allianz Stadium, amassing 230 appearances in all competitions.
During his time in Germany, Thiago has won seven Bundesliga titles, the Champions League and six domestic trophies.
Bayern have yet to receive any offers for Thiago, but there is alleged interest from Jurgen Klopp’s Liverpool.
Klopp thinks highly of the technically gifted player and believes he could add more quality to the Liverpool midfield.
And Christian Falk of SPORT BILD and BILD suggests the interest may be mutual.
— Christian Falk (@cfbayern) June 24, 2020