Sheila Dikshit, former chief minister of Delhi and the head of the state Congress, was conveyed this decision by party leaders PC Chacko and KC Venugopal in a late-night meeting, according to sources.
The meeting at Ms Dikshit's home ended past midnight. A formal announcement is likely to be made today.
Sheila Dikshit, a three-time chief minister whose term ended with the AAP's stunning rise in Delhi, had warned in a letter to Rahul Gandhi and his mother Sonia Gandhi that an alliance with Mr Kejriwal's party would hurt the Congress in the long run.
Ms Dikshit, who was vehemently opposed to the idea of a tie-up between the two parties, had said she would stick to the party's decision. Sources had said other Delhi Congress leaders wanted the tie up and had written to Rahul Gandhi.
The Congress leaders met at Ms Dikshit's home also to shortlist candidates for the seven Lok Sabha seats in the capital. The committee is tasked to shortlist names from around 80 applications received from party probables for the seven seats last month.
Sheila Dikshit maintained that Arvind Kejriwal had not approached her.
Reports suggest that the Congress is upset with the AAP offering only one of Delhi's seven seats in a tie-up; the Congress wants three. The Congress was also under pressure to form an alliance with the AAP as part of the new opposition strategy since the Pulwama terror attack.
In attempts to forge a tie-up between the two parties, Maharashtra politician Sharad Pawar had stepped in as mediator. Mr Pawar, the chief of the Nationalist Congress Party (NCP), separately met with Congress leaders and AAP's Sanjay Singh on March 19.
Soon after the meeting, Arvind Kejriwal had declared that the Congress had rejected an alliance and he was "fed up of trying to convince the party".
Delhi votes for its seven Lok Sabha seats on May 12. The results will be declared with the rest of the country on May 23.
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