He was training with Wigan recently and was invited for a trial by Gary McAllister after being recommended to him by Latics boss Steve Bruce.
But McAllister has decided not to pursue his interest in Dalglish and the 30-year-old is now set to move back to his native Scotland.
"I know Steve Bruce and Eric Black (Wigan assistant) very well and they were saying he looked pretty sharp but he wasn't going to affect their set-up," McAllister told the Yorkshire Evening Post.
"With us being two divisions below Wigan I thought we'd have a wee look, but we've decided his fitness levels aren't where we want them. He's going to take up an option in Scotland and it's something we'll keep an eye on."