Gatland had also been previously considering a position for Joe Schmidt, the Ireland head coach, before he also ruled himself out.
Townsend's decision has ensured that Gatland will not be in a position to announce his full coaching team at the official announcement at Carton House hotel near Dublin at lunchtime on Wednesday.
Ryan, who is keen for a return to 15-a-side coaching after a hugely successful stint with the Fiji Sevens side, is understood to be under consideration for the role but Gatland may also look to strengthen another area of his coaching team.
Jason O'Halloran, the Scotland back coach and fellow New Zealander, is another Gatland may turn to having made a significant impact on Scotland's back play since joining Cotter's coaching team last season.
Will Greenwood, the former England and Lions centre and Telegraph columnist, is not understood to have been approached, despite suggestions otherwise.
Also out of the running is Stuart Lancaster, the former England head coach, who is currently a senior coach at Irish province Leinster. Lancaster however has already been linked with the upcoming vacancy at Connacht created by the departure of Pat Lam to Bristol next season.