It was recently reported that the Cottagers were keen on signing the 25-year-old Belgian international amid interest elsewhere from Premier League rivals Aston Villa.
However, any potential deal is now off because of Porto's desire the keep the player.
"The transaction is forgotten," Paul Stefani told Portuguese newspaper O Jogo.
"The offer was very interesting but the decision fell to Porto. The player is very grateful for this vote of confidence that he has been given from the club."
Defour joined Porto from Standard Liege in 2011 on a five-year contract.