He was offered a new-and-improved contract of £120,000 a week to stay at Selhurst.
Spurs are thought to be desperate to sign an established winger, with reports suggesting that they are interested in signing either Crystal Palace's Wilfried Zaha or Manchester United's Anthony Martial.
Zaha wants to remain in London and sees Chelsea as the ideal club to continue his resurgence.
The 25-year-old Ivory Coast global bagged nine goals and three assists last term, despite missing five weeks of the season injured.
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The ex-England boss sees Zaha as vital to his plans and will not allow the wide-man - who they failed to win a league game without last term - to leave.
In today's day and age, £26.7 million for a player with Gray's ability represents excellent value for money, and Tottenham might just be better served in moving for the Leicester ace, rather than Zaha or Martial.
The winger had already rejected a move to Everton earlier this summer, appearing reluctant to move back north after a troubled spell with Manchester United which saw him loaned out three times in two years.
'I spoke to Wilf yesterday and he certainly gave me no indication it was true about wanting to quit the club, ' Hodgson told talkSPORT.
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"Everyone likes him, everyone admires him, he knows that and I think he likes and respects the club as well".
The forward is being chased by the Blues, but Palace are unwillingly to part with one of their most influential players.
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