The 22-year-old appeared on course to complete a move to the Championship club later this week after they reached an agreement with Villa which includes a substantial sell-on clause.
But there are now serious doubts about Hull's ability to finance the deal and Barry, who has been told he can find a new club this summer, may be staying put for now.
The Albion academy product made just four appearances for the Tigers before suffering an injury while on loan during the second half of last season.
But the club saw enough to push for a permanent move and with his first-team chances at Villa likely to be limited, Unai Emery is happy to let him go.
The move would have brought to an end a five-and-a-half year stay at Villa for Barry, a boyhood supporter who came through the ranks at Albion’s academy.
He eventually joined Villa after a brief spell at Barcelona for an initial £880,000 fee.
Barry’s sole appearance for the first-team came in January 2021 when a Covid outbreak swept through the training ground, forcing the club to play their youth team in an FA Cup third round tie against Liverpool.
He promptly scored Villa’s goal in a 4-1 defeat but never again got close to a senior appearance for the club.
Barry enjoyed big success during loan spells at Stockport County, scoring 16 goals for the League One club during the first half of last season before moving to Hull in the January window.
Speaking about the Barry deal on Monday, Hull owner Acun Ilicali said: "We are almost somewhere I can say, but you can never say transfers are done before they are finished.
"We saw it with our club, too. The Louie Barry deal can only be done and finished if it's in the best interest of the club.
“I like Louie Barry; he likes us. We had a good conversation with him three days ago. I'm personally involved in this transfer because of my relationship with Monchi (head of football operations at Villa) and Mr Sawiris (Villa owner).
"At the end of the day, Aston Villa's and our benefits have to match somewhere to make both clubs happy.”
Villa right-back Kaine Kesler-Hayden on the brink of a £3.5m switch to Coventry.