Seven Israeli players had requested visas for the tournament on Dec. 26-30. It would have marked the first time Saudi Arabia had publicly hosted Israelis as the Gulf state does not recognise Israel and there are no formal ties between them.
Israel Gelfer, vice president of FIDE, whose Secretariat is based in Athens, told Reuters in an email that visas for the Israeli players "have not been issued and will not be issued".
He said the tournament would go ahead as planned. It was not immediately clear if other delegations had been excluded but players from Qatar had suggested they may have been rejected.
Saudi Arabia's Center for International Communication said in a statement that more than 180 players would participate but did not immediately respond to a request for comment.
Israel Chess Federation Spokesman Lior Aizenberg said efforts were still being made "by various parties" to ensure the Israeli players took part.
"The event is not a world championship if they prevent chess players from several countries from taking part," Aizenberg told Reuters.
"Every chess player should have the right to participate in an event on the basis of professional criteria, regardless of their passports, their place of issue or the stamps they bear."
Aizenberg said FIDE should ensure Israeli players could compete in international events and that the Israeli federation was considering all options, including legal action and holding an international competition in Israel for players excluded from the Saudi match.
FIDE had said in November it was undertaking a "huge effort" to ensure all players were granted visas.
(This story has been refiled to clarify FIDE secretariat in Athens, but unclear where Gelfer speaking from)
(Reporting by Karolina Tagaris in ATHENS, Dan Williams in JERUSALEM and Katie Paul in RIYADH; editing by Ralph Boulton)
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