The second offer, an improvement on the original £1m, hit a stumbling block when it became clear that King's previous club (Barnet) would claim a percentage of the transfer fee following a clause written into his current deal at The Preistfield Stadium.
This was the reason why The Gills were holding out for more money as anything as much as 20 per cent could go to the Conference club.
Hart watched King from the stands last Tuesday and saw him net a great goal while Forest went through on penalties against Tranmere at Prenton Park.
Gillingham signed King from Conference side Barnet for £250,000 and the Forest boss was planning to snap-up the pacey forward before Premiership clubs can enter a bidding war in January.
Gillingham player-boss Andy Hessenthaler is now looking to extend King's current deal which runs out in the summer of 2005.
The saga continues...