The 22-year-old joined Leeds from Brighton a year ago but is not a regular in the team after a poor season last time and is ready to be offloaded by United.
Magilton is keen to have him up but negotiations have stalled, with Blackwell wanting one of Town's players in return.
Leeds are believed to be willing to do a deal for Harding in exchange for keeper Shane Supple.
"You could say our interest in Dan Harding is on-going. It is a work in progress," said Magilton. "But that doesn't mean we are going to do business to the detriment of other areas of the team.
"Leeds were keen on a player exchange deal for one of our lads but I'm saying no more than that at this stage. We didn't even consider it, we just said no way.
"I would like to sign Dan Harding but Leeds' proposal wasn't acceptable to us. Like I said, I am not prepared to strengthen one area of the team and at the same time weaken another."