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A positive scan yesterday increased the defenderâs belief he could be back for the knockout stages â and James ran on grass at Chelseaâs Cobham base for the first time since his operation.
But Southgate rang the Blues ace to deliver the bad news in person, telling him he could not afford to take a risk on his fitness.
A source said: âReece was confident he would be OK by the start of December.
âBut Gareth decided he could not take the gamble.
âIt is devastating news for Reece because he believed he would be OK.â
James suffered his injury against AC Milan on October 11 and was always facing a tough race.
Southgate names his 26-man squad for the tournament tomorrow, with England kicking off against Iran on November 21 and facing a potential second-round tie on December 4.
Hours earlier, Chelsea manager Graham Potter revealed Blues medics had been in regular touch with England staff â although he had not contacted Southgate directly.
Potter said: âReece was outside having a jog. It is just about how he responds. We know he is pretty optimistic about it â but in this situation you need to be.â
Yet Southgateâs decision ended all that optimism and also suggests he may have to take a similarly tough call on Manchester City duo Kyle Walker and Kalvin Phillips, despite Pep Guardiola suggesting they will be available for selection after injuries.
However, it improved the chances of Liverpoolâs Trent Alexander-Arnold.