The 25-year-old was set to return to Leicester to help Sven Goran-Eriksson's men chase promotion from the Championship.
Former West Bromwich Albion Centre Half Davies became an instant hit with the Foxes faithful when he was signed by Eriksson in October.
And, but for a late offer by Birmingham City, Davies would have completed a deal that would have kept him at the Walkers Stadium until the end of the season with a view to a permanent move should the Foxes realise their Premier League potential.
A move to Alex Mcleish's Premier League side would no doubt be difficult for Davies to turn down, especially after the Blues secured their place at Wembley for the League Cup final with a win over West Ham last night.
The defender has made no secret of the fact that he would prefer to remain in the top flight, where his ambitions clearly lie, but Eriksson will not be giving up the chase as the January transfer window reaches a predictably anxious climax.