However, they have now chose to appoint Lopetegui, who signed a new two-year extension with the Spanish Football Federation (RFEF) last month.
Spain's senior side are unbeaten under Lopetegui, having won 14 and drawn six of their 20 matches and begin their World Cup campaign against Portugal on Friday.
In May, he signed a two-year extension to remain as Spain coach until 2020 but the call of Madrid has proved stronger.
A club statement read: "Real Madrid CF announces that Julen Lopetegui will coach the first team for the next three seasons". They also scored 36 goals, and their form means they are one of the favourites ahead of the tournament in Russian Federation.
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In an official statement on the club's website, it was confirmed that the current Spain manager will replace Zinedine Zidane as first team coach after the tournament in Russian Federation.
He previously managed Porto and the Spanish underage teams.
"Julen Lopetegui will join the club after Spain's participation in the World Cup, after two years leading the national team".
He was sacked after just 10 games in charge, and after a spell away from management, he took up a coaching role with Real Madrid Castilla.
Lopetegui is in Russian Federation with the Spain squad, where he will oversee their challenge but will then leave his post with the national team and take over at the Santiago Bernabeu, per Marca.