Palace boss Hodgson had previously spoken highly of the forward, and he was expected to make the switch to Selhurst Park this month.
However, Palace have now pulled out of the move, with Hodgson confirming Palace had made the decision amid fears over Solanke's fitness, with the striker having suffered a recent muscle injury.
“It is a club decision,” said Hodgson. “We were interested, I think he is a good player.
“It turns out there are complications, other factors involved in it, and the club decided in the end it was not the right moment for us to be doing it.
“I do feel a little bit disappointed for the player because I think at one stage he made up his mind in our favour. So it looked as if it was going to work out, but it didn't work out in the end.
“These are things you accept as a manager because there are always elements that are beyond a coach's control.”
Solanke is still expected to move away this month, with offers from the other interested clubs already tabled. Newcastle and Rangers have also been linked with the 21-year-old.
Meanwhile, MailOnline report that fellow Reds striker Daniel Sturridge is set to be offered a new contract after the expiration of his current deal this summer.
Sturridge has played a bit-part role this season, but has contributed to a high-standard and Klopp believes the striker's quality would be hard to replace.