The Scottish international was due to play his 30th game of the season for Walsall, which would have meant him automatically gaining a new deal for next season.
However, the Saddlers board have now instructed manager Colin Lee not to play him to make sure the clause is not activated.
"Paul came to Walsall, having rejected other options available to him, because of the incentive based contract," Ritchie's agent David Baldwin told skysports.com.
"However, now that Paul is reaching one of those incentives - they have decided to back away.
"This is not a very good situation at all and I would think any agent and player dealing with Walsall will not think twice in the future.
"They attracted a big name like Paul on the back of this contract - which they are now refusing to let take its natural cause.
"Paul has given an awful lot to Walsall, playing the last 17 games or so with pain killing injections and against doctor's advice.
"He will probably not play for Walsall again - which has been their decision, but now Paul feels very let down.
"This does Paul no favours at all, but he cannot do anything about it.
"The manager Colin Lee is as frustrated as we are, but he cannot do anything about it - he knows how important Paul is for Walsall.
"Walsall did offer Paul terms for next season but drastically lower then we agreed originally and that is not good enough considering how Paul has done this season."
Ritchie is now set to sit out the rest of the season, although he does face two Football Association charges in April which could rule him out for a number of games anyway.
However, with Ritchie favourite to land the Player of the Year award at The Bescot Stadium it seems that he will not be short of offers when his current deal expires in June.
Meanwhile, out-of-favour striker Karl Hawley has joined non-league side Hednesford Town on non-contract terms until the end of the season after being released by The Saddlers last week.
