Smith, 19, was invited to train with the squad after being spotted by the club's scouting network while playing in Liege, Belgium earlier this year. But despite initially impressing coaching staff at The Den he has been unable to train for the past month or take part in any of The Lions' preseason friendlies.
"He's a smashing lad," said a club spokesman. "However we felt it was best for all concerned to let him go away and regain his fitness before we take another look".
In a statement released this morning, Smith's representatives, HPS Management, commended the club's stance and thanked them for their patience.
"Millwall have done all they could for Tony, but at the end of the day his injury has ruined his chances of joining the club.
"Naturally we are disappointed, but the club have promised to review the situation further down the line and we're hoping to be invited back after Christmas.
"In the meantime we're considering our options - including an invitation to play in Spain - but the door at The Den hasn't been closed entirely."
The youngster sustained the injury in June after accidentally treading on a piece of broken glass.