"We have gone as far as we can in terms of what we can offer James," said Leeds director Peter Lorimer. "We've almost doubled his salary and in the present situation it would be impossible to offer him more."
Milner's agent Mick McGuire has, however, denied the claim, stating that no such talks have taken place.
Leeds chairman Gerald Krasner was recently clearly adamant that Milner would not be leaving.
Should Milner head for the north-east, for what is expected to be a fee between £3.5m and £5m, he would be the fourth Leeds player to join Newcastle in recent years.