The A-League side was set to fly to host country Morocco on Sunday in readiness for the seven-team tournament, which they qualified for by winning the AFC Champions League last month.
Mexican outfit Cruz Azul are their scheduled opponents next Saturday, but Professional Footballers Australia (PFA) confirmed that the squad had reservations about competing as a result of the club "failing to enter into meaningful negotiations regarding the distribution of prize money".
PFA chief executive Adam Vivian said in a statement: "The players have made every attempt to reach an agreement on a fair and equitable share of the prize money.
"Despite these intentions the club has consistently refused to negotiate in good faith.
"Throughout this process the players have proposed a number of solutions to assist in coming to a resolution, including mediation and arbitration.
"However, the club has been unreceptive and unwilling to work towards an agreement that sees the players fairly remunerated for their success in reaching the tournament as the Champions of Asia or reflects their increased workload.
"As a result of this the players, with the full support of the PFA, have unanimously taken the decision to consider their participation in the tournament.
"The players and the PFA remain committed to sitting down with the Wanderers management to negotiate an acceptable outcome for all parties."
The news comes as the Wanderers continued their domestic struggles at the weekend with a 2-0 loss to Adelaide United, which left them rooted to the foot of the table.
Coach Tony Popovic, who on Saturday was given a suspended two-match ban from Champions League matches as a result of an altercation during the quarter-final first leg against Guangzhou Evergrande, offered no hint of the pay dispute after the defeat at Coopers Stadium.
"We've got to go now to Morocco, which we should be proud of and look forward to," he said.
"You're representing Australian football, you're representing the Wanderers and and we want to do Australian football proud.
"When we get back we've got a big job ahead of us in the A-League but we've got to enjoy this over there.
"I can guarantee you once they get to Morocco and the reason why they're there is because they're the Asian champions, we'll enjoy our week and do everything we can to set up a magical date against Real Madrid."
Get the best features, fun and footballing frolics straight to your inbox every week.
Thank you for signing up to Four Four Two. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.