Alex McLeish has resigned as Scotland manager and BBC Sport understands he will take over as Birmingham boss.
The Blues have called a news conference for Wednesday where they are expected to unveil the 48-year-old McLeish.
Appointed in January 2007 with a deal runnning until 2010, McLeish came close to taking Scotland to Euro 2008.
Scottish Football Association chief executive Gordon Smith told BBC Radio 5 Live: "We weren't going to allow him to speak to the club."
Blues, who received Â£3m when Steve Bruce left for Wigan, are believed to have agreed a compensation package with the SFA.
"Alex had a contract for another two years until 2010 andwe were willing to give him another two years with a much better deal financially," said Smith.
But, despite the prospect of an improved deal for McLeish, the lure of the English top-flight has proved too great for the former Rangers, Hibernian and Motherwell boss.
Smith added: "He has been a terrific manager for Scotland and a great asset to the association.
"He's also been working in other aspects within the SFA, and he's a big loss."
A hint that Blues had got their man came when caretaker assistant Eric Black quit on Tuesday to join Bruce at Wigan.
"I understand that McLeish agreed to join Birmingham soon after getting off the plane from South Africa this morning where he had been representing Scotland at the World Cup draw," said BBC 5 Live sports reporter Pat Murphy.
"Compensation isn't a problem. The SFA will receive around Â£1m for releasing McLeish.
The Premier League is where lots of guys want to be
SFA chief executive Gordon Smith
"McLeish has long hankered after managing a club in the Premier League and he was interviewed for the West Brom job three years ago.
"His playing credentials as a lion-hearted defender, capped 77 times by Scotland, and his clutch of trophies picked up as Rangers manager will guarantee him respect in the Birmingham dressing room."
McLeish previously had not ruled out a return to club football.
"I am Scotland manager until something else happens," he said recently
He also said he would not guarantee he would still be in charge for the 2010 World Cup qualifying campaign.
"It's a long time away," he told BBC Sport. "You can never tell in football.
"It's something that is always out of your control. I am Scotland manager until something else happens."
The SFA is to now hold a meeting on wednesday to discuss the current situation.
"The meeting has probably lost a bit of its impact," said Smith.
"I didn't think we'd be dealing with this today.
"It's one of those things. It's market forces these days, and the Premier League is where lots of guys want to be."