Ronaldinho, 30, had been a ambitious target for Premier League side Blackburn but is close to joining hometown club Gremio, who he left in 2001 to move to Europe with Paris St-Germain.
Brazilian media outlet Radio Globo claimed the former Barcelona playmaker is in Rio De Janeiro to sign a three-and-a-half-year deal with the club.
And Allegri said at a press conference on Wednesday: "We are all sorry to lose a player of the quality of Ronaldinho. But he has made a life choice by going to Brazil.''
But the move to Brazil is not yet rubber-stamped, with Ronaldinho expressing his frustration at what he perceives to be Milan's failure to accept the offer on the table from Gremio.
"I am not subject to auction," Ronaldinho said. "If it were down to me I would already be wearing the Gremio shirt, even on less money. The problem is not the proposal they made to me, but what Milan are asking for. Nobody has come close.
Ronaldinho's current contract with Milan expires at the end of the the season and, with the Rossoneri having already signed Antonio Cassano from Sampdoria this week, there is no space for the former two-time World Player of the Year in Allegri's line-up.
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