The 16-year-old midfielder has been tracked by several Premier League clubs since making his first-team debut against Wigan last season, and is now on the verge of a move to Stamford Bridge.
The Baggies are due at least £209,000 compensation under Elite Player Performance Plan rules but the club’s sporting and technical director Richard Garlick insist they deserve more.
"We are disappointed by Chelsea’s offer," he told the club’s official website.
"We have invested a lot of time and money in Isaiah’s development as a player. As one of our most exciting academy products in recent years, we had hoped to bring him through into our first team.
"But Chelsea have forced our hands and we are more than prepared for the matter to be decided by a tribunal if needs be.
"More importantly, it makes you question why these young players are joining bigger clubs when they are likely to gain more first-team opportunities in the Barclays Premier League at clubs similar to us."
Brown has won three England Under-17s caps and two for the Under-16s, scoring his first goal in a 4-3 friendly defeat to Germany in February.
Two months later he became the second youngest-ever Premier League player when he came on as a late substitute against Wigan, aged 16 years and 117 days.
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