The Clarets had hoped to take the midfielder on a temporary basis until the end of the season but the injury to Aliou Cisse means that Blues boss Steve Bruce is short of midfield cover.
Cisse faces a number of weeks out with an ankle injury and that led to Bruce turning down Clarets boss Stan Ternent's approach for Hughes.
"With Aliou's situation, I told Burnley that I couldn't let Bryan go," said Bruce.
Birmingham have already allowed Curtis Woodhouse to join Rotherham on loan and with Darren Carter set to leave for the World Youth Championships in March, Hughes is needed at St Andrews.
The news will also be a blow to Leicester City boss Micky Adams who was hoping to bring in Hughes until the end of the season as soon as The Foxes emerge from administration.
Hughes was instrumental in Blues' promotion from Division One last season but the arrival of Cisse and Robbie Savage has meant he has fallen out of the first-team picture.
