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 running 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."
The Blues, who received £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 and we were willing to give him another two years with a much better financial deal," 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 the 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 £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."
The SFA will now hold a meeting on Wednesday to discuss who will succeed McLeish.
BBC 5 Live Scottish football correspondent Roddy Forsyth said disappointed Scotland fans should wish McLeish well on his move south of the border.
"He's the second inspirational manager to quit Scotland within 11 months," he said.
"But while the Tartan Army were able to understand Walter Smith being unable to resist the lure of Rangers second time around, they'll be more baffled by McLeish's choice of Birmingham, a club with a modest fanbase and an uncertain future.
"The fans may not thank McLeish for going, but he deserves their gratitude for what he did during those marvellous 11 months."
Forsyth's view was echoed by Scotland and Rangers legend Ally McCoist.
"Without doubt it's their gain and Scotland's loss," said McCoist, who worked with the national team alongside Smith.
"It's been a fantastic campaign under the big man and I genuinely wish him all the very, very best."