The Tigers dismissed Shota Arveladze after eight months at the helm just hours before their game against Luton last Friday and are on the hunt for a new manager.
Martins looked set to take charge of the club and the former Olympiacos boss was seen alongside Ilicali watching Hull's win against Wigan on Wednesday, when the team broke their run of five consecutive defeats.
However, Ilicali issued an update on Friday morning confirming Martins would not become the new manager, adding "we didn't feel we were able to meet his demands". Caretaker manager Andy Dawson will remain in the dugout to oversee the Tigers, who will face Huddersfield next on Sunday. A statement from the Hull chairman on the club website said: "After extensive discussions with Pedro Martins, we have been unable to reach a mutually agreeable position so we have made the decision to cancel negotiations. "Pedro is a great coach but we didn't feel we were able to meet his demands, so we thank him for his interest in Hull City and wish him all the best for the future. "Our team is in very capable hands with club legend Andy Dawson and we are more than happy with the work he and his team have done in the last week. "The atmosphere in the stadium on Wednesday made it clear to me that we have a very unified club, and the support given to Andy and the players from the fans was amazing to see. "With all of the above in mind, Andy will remain in charge of the first team until further notice. "We have been inundated with interest from high-calibre coaches around the world and we will continue to consider all of our options until we find the correct candidate to lead this great club forward. "This is a very important decision for us and not something we want to rush. We are fortunate that the stability Andy and his team brings allows us the time to get this decision right. As I said at the start of our journey together, we will operate with transparency and keep supporters updated throughout this process. "As ever, I would like to thank our fans for their wonderful support. It's an amazing feeling to know we are all pulling in the same direction and we will keep fighting together to bring the success this club deserves."
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