Sources with direct knowledge of the situation tell us the design house presented Kim an offer to do a 2023 Balenciaga campaign before the controversial child BDSM ads went live. We're told once those ads went public, Kim made the decision to reject the offer ... even before releasing a statement on the issue.

Not only that ... our sources say Kim had plans to wear Balenciaga outfits at events she's attending in coming months, but she's pulled the plug and contacted other designers for new options.

Kim took a lot of heat for not immediately denouncing Balenciaga's campaign or announcing she was leaving the brand -- but our sources say she's not even locked into a contract with Balenciaga right now, and isn't directly making money from the company.

As we reported, Balenciaga's campaign using children models holding BDSM teddy bears in a photo shoot -- along with prop legal docs referencing child porn -- pissed off the public.

Kim responded to the controversy Sunday with a statement that said, in part, "As a mother of four, I have been shaken by the disturbing images. The safety of children must be held with the highest regard and any attempts to normalize child abuse of any kind should have no place in our society -- period."

She added ... "As for my future with Balenciaga, I am currently re-evaluating my relationship with the brand, basing it off their willingness to accept accountability for something that should have never happened to begin with — & the actions I am expecting to see them take to protect children."

Clearly, Balenciaga got Kim's message and announced Monday ... "We want to ensure that new controls mark a pivot and will prevent this from happening again. We are laying the groundwork with organizations who specialize in child protection and aims at ending child abuse and exploitation."