Bakary Sako wants to fight for his place at Crystal Palace despite Birmingham's attempts to sign him.
Blues and Derby have both offered around £4million for the Mali international forward, although Birmingham's bid guaranteed a better final figure.
Birmingham's offer remains on the table and they have not given up hope on a deal.
But Press Association Sport understands the 28-year-old Sako is reluctant to leave Selhurst Park as he tries to impress new boss Sam Allardyce.
There is also the issue of the forward's £65,000-a-week wages which Birmingham are unwilling to match.
The club, under new owners Trillion Trophy Asia, want to maintain a sensible structure and not be saddled with huge wages.
There is still the memory of having to pay Nikola Zigic's £40,000-a-week package under the previous owners while they were fighting relegation from the Sky Bet Championship and struggling for cash.
Sako has made just five appearances for the Eagles this season, four as a substitute in the Premier League, having struggled to play under ex-manager Alan Pardew.
Allardyce has included him in three of his four squads and Sako was a second-half substitute in Wednesday's 2-1 home defeat to Swansea.
He joined from Wolves on a free transfer in 2015 and scored twice in 23 games during an injury-hit first season.
The 28-year-old is a target for Birmingham boss Gianfranco Zola who has £10million to spend this month.
Blues are intent on improving the quality of their squad during the window as they look to fit Zola's style of play.
The Italian is yet to win in his four games in charge after replacing Gary Rowett last month and Blues host Newcastle in the FA Cup on Saturday.
Sako is due to travel to Gabon for the African Nations Cup this month with Mali starting their campaign against Egypt on January 17th.