Mr Ashley bought the shares from entrepreneur Sir Tom Hunter a week ago, according to the Sunday Times, before trying to derail the sale of the business to Nanjing-based conglomerate Sanpower by buying out other investors.
Mr Ashley's attempted coup did not succeed, but means that Sanpower, which has agreed terms on a deal valuing the chain at more than £450m, is denied full ownership and is instead taking 89 per cent of the business.
The businessman is understood to have been stalking the 165-year-old department store for 18 months and reports last week of the Chinese firm closing in on a deal were said to have infuriated him.
He is said to have long held ambitions to buy House of Fraser and use it to sell Sports Directs fashion brands.
But it was believed that investors had doubts about accepting a low ball offer from Mr Ashley and turned their noses up at the idea of his involvement as it aimed to focus on becoming an upmarket, premium department store.
His purchase of the 11 per cent stake from Sir Tom - with whom he has done retail deals in the past - appears not to have deterred Sanpower, with an announcement on the House of Fraser deal apparently imminent.
There were also believed to be question marks over Mr Ashley's move as pre-emption rights can mean existing shareholders have to be offered right of refusal ahead of an outside investor.
It is the businessmans latest dramatic foray into the world of household name retailers, after taking an option to buy a 6.6 per cent option in struggling Debenhams in January.
Days ago, the Sports Direct founder suffered a setback when the FTSE 100 group scrapped plans to pay him a shares windfall potentially worth more than £70m after investors failed to back the award.
The sale of 89 per cent of House of Fraser to Sanpower - which has more than 100 businesses in mainland China - puts paid to separate plans that were being considered to float the chain on the London Stock Exchange this summer.
The department store, which generates sales of 1.2 billion a year and employs 7,300 people as well as 12,000 concession staff at 61 stores, has held a protracted search for new investors in the last year.
Frances Galeries Lafayette had exclusivity on talks with House of Fraser until the end of January.
The chain, which has its origins as a small drapery store in Glasgow, first listed on the stock market in 1948 and remained a public company until it was bought by Mohamed al-Fayed in 1985.
It was listed again in 1994 before being snapped up in 2006 by a group of investors led by Icelandic tycoon Jon Asgeir Johannessons Baugur Group in a £350m deal.
Sanpower is run by tycoon Yuan Yafei, whose empire spreads across finance, property, media, transport and IT and now employs 30,000 people with assets worth nearly £5bn.
Reports suggest the business is planning to inject £70m to £80m into House of Fraser in order to finance a wide-ranging store revamp and website improvements.
It may also take the department store into China by opening new stores or changing some existing sites to the House of Fraser name.
House of Fraser and Sports Direct declined to comment. A spokesman for Sir Tom's West Coast Capital investment vehicle could not be reached.