The 25-year-old only joined the Irons last summer from Wigan, but has been at the centre of rumours suggesting he was ready to walk away from Upton Park should a club match the £3.5million release clause in his contract, with Arsenal said to be monitoring the situation.
Despite a strongly-worded statement from Diame last week insisting he was "happy" at Upton Park, the speculation over his future refuses to die down. Allardyce accepts the whole situation is now unpalatable. "My understanding is that it is total confusion. I am as confused as anyone by what is happening," he said.
"I am sat there listening to what is going on (in the media), but deep down inside behind the scenes I speak to the chairman and where we are at the moment we are relatively comfortable regarding Mo Diame.
"However, whatever he [Diame] says to me today might change in an hour's time - if Manchester United ring up in one hour's time, he's not going to want to stay is he?
"It can change between now and 11 O'clock Thursday night. In the flick of a text, or an e-mail, or a phone call."
Allardyce added: "There is certain situations where yes, we might lose the player, I hope we don't. But if the situation develops accordingly there is going to be the chance we lose him. We are trying to keep him."
West Ham strengthened their backline on Monday with the loan signing of former Middlesbrough defender Emanuel Pogatetz. However, Allardyce revealed plans to also bring in left-back Stephen Warnock from Aston Villa had been derailed, as the 31-year-old now looks set to join Leeds instead,
"Stephen we thought was a goer yesterday, but we had another club in the Championship make him a longer-term offer, which he has accepted," said Allardyce.
"Ours was more a short-term offer with a view to a further and longer deal, but at the end of the day he chose the more secure one."