James, who became England's first-choice goalkeeper at the World Cup finals in South Africa after Robert Green was dropped, is expected to hold talks with the Scottish Premier League side Celtic.
"It was a tricky situation. Steve Cotterill and I discussed it at length," Pompey's chief executive David Lampitt told The News.
"We did our absolute best in trying to keep him. I would have loved for him to stay. The difficulty for us is that we have got to resolve our goalkeeping situation.
"It got to a point where we needed to have some certainty with only three weeks to go until the new season and we need to look at other options."
Preston North End have turned down a third bid from West Bromwich Albion for goalkeeper Andy Lonergan.
"I think everyone has some sort of perception the club is skint but the chairman and the owner are trying to help me as much as they can and to turn down a third bid suggests that," said the Lilywhites manager Darren Ferguson.
"We got the latest bid today but I value him at £20million - I don't want to sell him. I'm not being funny but West Brom are not going to get him for what they are bidding, no chance."
Simon Grayson criticised his Leeds United players after a 4-0 friendly loss to League Two side Bury on Tuesday night.
"It may be pre-season but it's preparation and that's a body blow. For 25 minutes we looked quite sharp and passed it well, but after that we didn't pass it enough, we didn't win tackles and we didn't show any energy," he said.
"We gave the ball away too cheaply and didn't defend as a group. No one can come out with any credit. You can make excuses about a hard day's training on Monday, but that's what pre-season is about. It was a kick-up the backside.
"I expect more from them and the players have to take that. If we play like that in the Championship we'll get done by seven or eight."