The Senegal Football Federation had wanted to include the 27-year-old among their squad for the tournament, but Pardew took the decision to ruin his Olympic dream.
Alan Pardew: "It was more the owners, really, who have to pay the guy's money.
"He had a full first half in Germany, he had the African Nations Cup, he had the second half of the season in his first year in the Premier League.
"He then had qualifying games, they want him again for the African Nations and they wanted him for the Olympics, and that was stretching it a little bit.
"As much as I feel for Papiss, because I am sure he would have wanted to play - he's not back yet, he's due back later this week - we have to make a call for his own health.
"I am sure he has got pressure from within the country for him to play and we have to release that pressure for him because physically, he couldn't do that. It's impossible."