Sam Walker made his Kangaroos debut on Sunday, helping Australia beat Fiji 36-22, weeks after winning the 2026 premiership with the Sydney Roosters.
The Roosters withdrew their contract-extension offer on Monday night after months of negotiations over a deal beyond the 2027 season.
The club said the parties had been unable to agree on terms.
Reports valued the withdrawn offer at $1.4 million a season, or more than $4 million in total, for the 24-year-old.
Walker has said several times that he wants to stay, but reports say the Roosters will not prevent him leaving after 2027.
He becomes a free agent on November 1 and can then negotiate with rival NRL clubs.
The Daily Telegraph reported that chairman Nick Politis was angry after Walker's management sought a small increase to its latest offer, and described Walker's Roosters future as badly damaged.
Earlier on Monday, coach Trent Robinson told Channel 7 he was confident the contract issue would be resolved.
Former NRL player and pundit Denan Kemp said the decision could reshape the transfer market:
"Oh my god.
This is going to send the transfer market into a frenzy.
The Roosters will stand on their principles not matter what.
I am mind-blown.
I'm assuming they are confident they can develop their young guys coming through.
This is a bombshell and one of the strongest plays I've ever seen from a club."
Fans also reacted with disbelief, with many comparing the move to the Roosters' handling of Latrell Mitchell before he joined South Sydney.