Manchester United will receive around £1m in compensation after reluctantly informing Sir Alex Ferguson's assistant, Carlos Queiroz, that he is free to leave the club and replace Luiz Felipe Scolari as Portugal's coach.

The deal was hammered out last night by United's chief executive, David Gill, and the president of the Portuguese football federation, Gilberto Madail, after Queiroz rejected a pay rise at Old Trafford and made it clear he could not turn down the chance to take Portugal to the next World Cup.

Queiroz, who has agreed a four-year contract, has been in Lisbon finalising the arrangements but is expected to fly to Manchester today to complete the formalities and say his goodbyes to the staff.

His departure presents Ferguson with an unwanted problem ahead of the forthcoming season, not least because Queiroz was supposed to play a major part in persuading Cristiano Ronaldo to resist Real Madrid's advances. Ferguson hopes to appoint a replacement before the start of the season, the likelihood being that he will headhunt someone from outside.