The board were prepared to pay Bowyer's estimated current wages of £30,000-a-week, as well as paying a bonus to both the player and to Leeds if Blues avoided relegation.
Blues even offered the England international midfielder the chance to move back to his native London and be taken to and from training each day by chauffeur-driven car.
But Bowyer looks set to take his talents elsewhere as Blues have admitted that the deal is virtually off.
"Following negotiations with representatives of Lee Bowyer and Leeds United, it now seems highly unlikely that Lee Bowyer will be joining Birmingham City," a spokesman said.
"The club are naturally disappointed but we will continue to strive to improve the squad with this calibre of player.
"The club and the manager Steve Bruce have already signalled their intentions by signing Ferdinand Coly and Christophe Dugarry - two World Cup players."