McLeish left the Scotland job after 10 matches

McLeish was initially denied permission to talk to Birmingham and ended up resigning as Scotland manager in November to take over at St Andrews.

The SFA has now demanded �1m compensation, but the English club are reported to be offering �600,000.

McLeish was set to lead Scotland in the 2010 World Cup qualifying campaign.

SFA chief executive Gordon Smith has said the governing body in Scotland may pursue legal action if they do not receive a more suitable offer.

"We are in negotiations with Birmingham City," said Smith.

"We do not want it to get messy, but the fact is we would rather still have our manager.