Birmingham have confirmed midfielder David Dunn has rejoined former club Blackburn for an "undisclosed fee."
Dunn joined Birmingham from Blackburn for £5.5m
Dunn's decision has angered Bolton manager Sam Allardyce who thought he had captured the 27-year-old.
Birmingham boss Steve Bruce told his club's website: "He's a Blackburn lad and wants to go back there and play for his hometown club again."
Dunn added: "I am back at the club I've always supported. As soon as Blackburn came in for me, my mind was made up."
The one-time England international explained: "It feels really good to be back. It has been a hectic week but I am glad it is all done and I am back in Blackburn.
"I am really pleased now that it has all come to a head and I've signed that piece of paper."
Bruce had maintained he would not stand in Dunn's way but said: "It's a crying shame that with the talent he's got we never saw the best of him at Birmingham.
"He was a young lad coming here and we paid £5.5m for him some three-and-a-half years ago.
"It hasn't worked out but, even from the little bits that he's played, we can all see that he's one of those unique ones that can do something different."
Dunn passed a Bolton medical and was discussing personal terms before Blackburn tabled a late bid, believed to be a £2.2m package based on appearances.
"He's told me that's where he wants to go - simple as that," said Allardyce.
"At the 11th-hour they have pinched him. We are extremely disappointed, but there is not a lot we can do about it."
Allardyce added: "I always feel let down when you have got so far down the road spending so much time showing the player this is the best place to be to get his career back on track.
"But it was not quite a big enough pull compared to the town where he was born and bred."
Dunn left Ewood Park to move to Birmingham in a £5.5m deal in the summer of 2003.
Rovers' interest in Dunn increased after Steven Reid ruptured his cruciate ligament earlier in the season in training and was recently ruled out for the season.
Dunn previously made 169 appearances for Rovers, helping the club gain promotion back to the Premiership and win the Worthington Cup in 2002.
He left Blackburn after a bitter fall-out with then manager Graeme Souness.
Injuries meant Dunn made only 53 appearances in three-and-a-half seasons at St Andrews.
"We were taking a gamble on a player with his injury record," said Allardyce.
"It took a little longer than most because of the need to check out all the problems David has had.
"But sadly, I think his heart is with Blackburn."
Birmingham look set to take a massive financial loss but Bruce added: "It is a total package of £2.2m but a lot of that is obviously based on appearances.
"Dunny has only started 27 times for us which is a shame for our club and a shame for Dunny because when I signed him I paid a lot of money for a quality player."