Mauro Zarate was handed a late call-up to the starting line-up and he made the first meaningful contribution to an uninspiring opening 45 minutes.
He played a one-two with Olivier Kapo before flashing a shot just wide.
News filtered through that Reading had taken the lead at Derby and it seemed to knock the wind out of Birmingham.
Kapo had a glancing header off target from a Larsson cross in a rare goalscoring chance.
Hughes reflects positively over season
Birmingham were handed a lifeline by a glaring error from Friedel when he allowed a long-range effort from Murphy, who was given far too much room to shoot, to slip past his reach.
With Villa being held at West Ham at half-time it was a much improved Blackburn side that turned up for the second period, perhaps sensing that a route into Europe was theirs for the taking.
Brett Emerton almost made Maik Taylor pay for going walkabout at the back but the keeper had Stephen Kelly to thank for a goal-line clearance.
It was another mistake that led to Blackburn's equaliser with a stray pass from Damien Johnson letting in Jason Roberts, who was twice denied by brave saves from Taylor.
It was a difficult afternoon for Birmingham fans
But Roberts kept his cool to divert Taylor and pick out Roque Santa Cruz, who in turn slipped a pass to Pedersen to score from close range.
With Reading cruising to victory at Derby, there was nothing left for Birmingham to do but go for the win and hope results turned in their favour.
Jerome was guilty of a horrendous miss in front of an open goal from only five yards out.
His embarrassment was short-lived as the substitute striker finished off a much harder chance just a minute later as he delicately volleyed in from Larsson's chipped pass.
It was his first goal in 2008 and he added a second when he raced clear to confidently slot past Friedel and make it 3-1 in the closing minutes of the match.
City saved their best for last with a fine Muamba header from Mehdi Nafti's dinked cross, but the flourishing finish failed to lift the home side's spirits as the full-time whistle brought an end to their brief Premier League stay.
Birmingham boss Alex McLeish "I've had disappointment before and sure I'll have some in the future, but I've also had many great moments and I know I'll have some with this club.
"The players put on an outstanding performance. We bounced back strongly, were brilliant and resilient and we have to take that forward.
"One more victory would have done it, but it's no disgrace to be relegated from a top class competitive league."
Blackburn boss Mark Hughes "We had an opportunity to get the job done and we didn't, that's the galling thing.
"We are disappointed with that situation because we haven't taken the opportunity that presented itself.
"Over all the season has been very good and we'll look to build on it next year."
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