Blues had already set their sights on signing Davies in a straight £3.5million deal and the player has already held talks. But Villa boss Gerard Houllier has revived his earlier interest in Larsson, who is out of contract at the end of the season.
If a deal could be agreed, Blues would consider offering Larsson plus £1.5million for Davies' services.
Talking with the enemy: Alex McLeish (left) and Gerard Houllier (right) are in discussions over a swap between Sebastian Larsson and Curtis Davies despite the fierce rivalry between Birmingham and Aston Villa
Blues want to strengthen their back four with Scott Dann out for the remainder of the campaign with a hamstring problem.
Davies had looked set to rejoin Leicester on loan for a second spell before Birmingham made their interest known.
Houllier has already spent £24million during the January transfer window on Darren Bent and Jean Makoun from Sunderland and Lyon respectively.
But the possibility of signing Larsson in exchange for Davies has reawakened his interest in a further signing.
Wembley date: A potential snag for the deal is whether Sebastian Larsson will be willing to sacrifice a trip to Wembley in the Carling Cup final by moving to Villa
The big sticking point could be whether Larsson is prepared to sacrifice an appearance at Wembley with Blues in the Carling Cup final against Arsenal on February 27.
He will be a free agent in the summer when, if they were still interested, Villa could sign him for nothing.
Davies would welcome the chance to move to Blues after slipping down the pecking order at Villa.
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Explore more:People: Craig Gardner, Scott Dann, Sebastian Larsson, Gerard Houllier, Liam Ridgewell Places: Lyon, Birmingham