The decision was made after Blues' acting chairman Peter Pannu met with manager Alex McLeish and chief scout Paul Montgomery on Monday, the club said on its official website.
Birmingham had agreed a £6million deal with Spurs for Keane but the trio decided that Keane's singing was not financially viable at this stage.
No go: Robbie Keane (second left) will not be joining Birmingham
Pannu said: 'I met with Alex and Paul today 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.'
On target: Rangers striker Kenny Miller is wanted by Birmingham
The Irishman, who joined Tottenham for the second time from Liverpool in early 2009, has only started two matches this season for Spurs.
McLeish has continually stressed the need for Birmingham to sign a quality striker. He is aware a lack of goals has seen them become embroiled in a Barclays Premier League relegation battle this season. Midfielder Craig Gardner is their leading marksman with just five goals.
McLeish is still also hopeful of bringing in Rangers striker Kenny Miller in a deal which could rise from an initial £600,000 to £1.1million.
Miller has also been the subject of an offer from Fiorentina but Birmingham sources indicate the player is edging nearer to being reunited with his former Scotland manager McLeish.
Old pals: David Bentley had urged Blues to snap up Keane from Spurs
Blues wrapped up the loan signing of David Bentley last week and themidfielder admitted on Monday that he hoped the club would boost itsstrikeforce by bringing in both men.
'Robbie is still a great player. Even in training, he is still assharp as anything,' Bentley said. 'He knows where the net is and he isintelligent as a player.
'People are talking about his age but he has never been a player that has been blessed with pace. He is an intelligent player and it will be great to get him in.
'I am in close contact with Robbie and hopefully things can be sorted out. He has still got loads of quality.
'Kenny Miller is also a player who leads the line well and scores goals. If we can get players like that in, it will be great.'
Birmingham need Keane and Miller now, says McLeish after derby drawVilla want to lure Birmingham's Larsson and Adam from BlackpoolThe Insider: Vaughan in Celtic sights, decision time for Stoke target Ba and Sheffield United want Preston defender JonesBursaspor delay their bid for wantaway Rangers striker Miller
Explore more:People: Robbie Keane, Alex McLeish Places: Birmingham
Source: Daily Mail
Source: Daily Mail