Blues agreed a fee with Spurs for the Republic of Ireland international last week but the move has now apparently stalled over the player's wage demands.
Birmingham's acting chairman Peter Pannu told the club's website bcfc.com: "I met with (manager) Alex (McLeish) and (chief scout) Paul (Montgomery) to discuss some new targets - names that we will not be mentioning at this moment in time - as we have decided that the signing of Keane would not be in the best financial interests of the club.
"Everyone knows he is a tremendous player but having considered the overall package (one which certainly wasn't unfair on the part of his representatives to ask for given his talent and experience), Keane's age and the length of contract we felt that financially he wasn't the best option available.
"This is unfortunate because Keane is a class act but supporters can rest assured we are considering other options and will pursue them where financially viable."
Source: PA
Source: PA