He had been offered a 12-month deal to stay in North Lincolnshire, and was at Glanford Park on Thursday ready to commit to the club.
But he made a last-minute u-turn after being offered higher wages to join the Shrews.
Iron boss Brian Laws said: "We are disappointed, because we felt we had done a deal.
"At the last moment he's taken a phone call from Shrewsbury who have offered him more than we can.
"It's now back to square one and looking at other targets, but I hope to something as quickly as I possibly can."