Blades manager David Weir confirmed McDonald had been allowed to speak with Wolves, but insisted he did not want the 24-year-old Scot to leave Bramall Lane.
"The club wish to stress it has no desire to lose Kevin. However, Wolverhampton Wanderers have triggered a clause in Kevin's contract by meeting the fee and, subsequently, the player has been allowed to speak to club.
Weir said: "Obviously we are aware of the situation with Kevin and we couldn't really stop that.
"It would be a blow to lose him; you can't get away from that, but we'll see what develops, there's still a bit of water to go under the bridge."
McDonald made over 50 appearances for Burnley following a £500,000 deal that took him from first club Dundee in 2008 and joined the Blades on a free transfer following his release from Turf Moor in 2011.
He has been a regular during his two seasons at Bramall Lane under previous manager Danny Wilson and was expected to play a key role in Weir's first season in charge as the Blades target promotion from Sky Bet League One at the third attempt.