Kevin Phillips has left West Brom to join rivals Birmingham on a two-year contract.
The former England striker was Albion's top scorer last season as they secured promotion back to the Premier League.
However, manager Tony Mowbray was only prepared to offer the 34-year-old a one-year contract at The Hawthorns, not the two-year agreement he was looking for.
Birmingham are bidding to regain their Premier League place at the first attempt following their relegation last season and have agreed to match Phillips' demands.
Phillips scored 46 goals in 81 appearances for The Baggies and was named in the PFA Championship team of the year last season.
The Baggies revealed they did offer Phillips a two-year contract - but with the second dependent on appearances over the coming season.
He needed to feature in only 19 league games, including substitute appearances, to activate the second year.
Manager Tony Mowbray said: "We made Kevin a very substantial financial offer for the next two years but in my opinion the second year had to be earned.
"Kevin's advisors were adamant they wanted a straight two-year contract and,
as that was the sticking point, I have no problem with the outcome.
"I am happy that as a club we made a fair and realistic offer to Kevin and I'm obviously disappointed he has chosen not to accept it. But I've had a couple of very amicable conversations with Kevin in the past two days.
"Now that he has made his decision, I would like to thank him for his goals and contribution over the past two seasons.
"He is a top professional and has been a pleasure to work with. We all wish him well."
Mowbray added: "Kevin was a big player for our club over the last two seasons but we should look forward to some new exciting players coming here. I remain very positive.
"This time last year we lost some very influential players but went on to win promotion and reach the FA Cup semi-finals."