The Toffees were looking to sign the youngster on loan in January and thus offer him a chance to gain some first team experience.
Everton officials also hoped that the player’s international suspension would see the Italian club warm up to the idea of letting him join the Premier League outfit.
However, L’Equipe understands that Milan vice-president Adriano Galliani notified Everton that the player was staying put.
Namely, the Rossoneri are confident the 17-year-old has enough quality and potential to play at the highest level and are not interested in loaning him at this point in time.
M’Baye Niang joined Milan in a €3 million move from Caen in the summer, but has only made one substitute appearance in Serie A.
He was one of four France Under-21 internationals suspended until December 2013 for attending a night club during preparations for Euro 2013 qualifiers.