Town had accepted an undisclosed bid, thought to be around £600,000 for the Republic of Ireland international on thursday.
Alan Lee has now put pen to paper on a 3 year contract, something Jim wasn't prepared to offer.
Lee had a decent goal scoring record here at Ipswich, scoring almost one in every three games, getting a total of 34 goals in three seasons.
Many fans fear this is a suicidal move by the gaffer and Jim Magilton will now have to move swiftly to sign another striker before the transfer window shuts.
Most recently Heidar Helguson has been linked with a move to town, and if true he would link up with former Bolton team mate Ivan Campo.