Blues boss Alex McLeish has confirmed that Newcastle had made a bid for the Sweden international midfielder but talks between the two parties have stalled over personal terms.
"Newcastle made a bid but I don't think Seb could agree terms so he is still a Birmingham player," McLeish has said.
Larsson will be out of contract at St Andrews in the summer and would then be allowed to move on a Bosman-free transfer should he not sign for another club during the January transfer window or agree a new deal with Blues before then.