New Birmingham manager Alex McLeish is a long-time admirer of McFadden and is looking to add some fire-power to the Midlands side.
The forward was highly influential for Scotland during their recent effort to qualify for the European Championships finals, and former international boss McLeish is looking to renew his acqaintance with the player.
SkySports have reported that a £2.5 million bid has been lodged by the Blues, but Everton are not keen on letting the player go.
Celtic had an earlier loan bid for McFadden turned down and it now seems there are other suitors south of the border.
The 24 year old has not been a regular starter this season, but has impressed whenever called upon.
He has made 12 appearances scoring 5 goals in the process.
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