"It was very significant," McLeish told Sky Sports after the match.
"We knew that if we did not win tonight it would be difficult to catch Wolves.
"But we have got them in our sights now and we must have the belief that we can get as many points as we can to overhaul Wolves.
"That has got to be our target, but the other teams below us will be saying the same thing."
Blues had skipper Lee Carsley sent-off in the 37th minute for a reckless tackle on Wolves striker Chris Iwelumo and he will now have to serve an automatic three match ban.
"I didn't think Lee was favourite for it (the ball), but he is a whole-hearted player and I know he is disappointed at getting Iwelumo," McLeish said.
"Carsley is not a dirty player. He is hard, but he is fair.
"It is a setback because he has been an inspiration, not just on the pitch but behind the scenes in terms of preparation for the games.
"He is a loss but we have some terrific players who did not even get a strip tonight.
"I told them before tonght's game that they will all play a part before the end of the season."