Both Chelsea and PSG agreed to pay Ugarte’s £52million release clause but the French club offered him a bigger wage package and the Blues have backed away from talks.
Chelsea will instead target securing a deal for Caicedo ahead of Arsenal and Liverpool, as they rebuild their midfield under new head coach Mauricio Pochettino.
Caicedo could cost more than £80m after establishing himself as one of the best midfielders in the Premier League at Brighton.
Arsenal attempted to sign Caicedo in January and could target him again this summer, though their primary focus is a move for their top target Declan Rice.
Liverpool and are also interested in the 21-year-old Ecuador international.
But Chelsea are optimistic they can reach a deal for Caicedo and are thought to have discussed a move for him in talks with Brighton over Levi Colwill.
Chelsea rejected a £30m bid for Colwill from Brighton last week and have insisted the 20-year-old central defender is not for sale.
Colwill enjoyed a brilliant season on loan at Brighton and Pochettino has indicated he is in his plans at Stamford Bridge.
But Brighton want to keep him at the Amex this season, which could help in negotiations over Caicedo.