Pennant, who is currently serving a three-month jail sentence for drink-driving offences, is eligible for parole on 31st March and manager Steve Bruce has confirmed that talks to turn the wingers season long loan deal into a permanent move are at an advanced stage.
"Our managing director Karren Brady has virtually done a deal for Jermaine and the next step is to agree terms with the player," the Blues boss has said.
Blues are believed to be paying an initial £500,000 fee to Arsenal for Pennants service's with that figure rising to £3million based on appearances and incentives.
Bruce has also confirmed that defender Matt Upson has been offered a new five year deal and that he his confident that the 25-year-old England international centre-back will commit his future to Blues.