McLeish is aware that expectation levels have risen amongst supporters after Blues finished ninth last season.
But he has echoed the thoughts of former City manager Trevor Francis, who feels a top-six berth is an unrealistic aspiration.
How can you expect us to finish in the top six? Birmingham boss Alex McLeish wants realism in the city
McLeish said: 'It is ludicrous to suggest that. It is incredible that some people think that.
'But my experiences in the game tell me it is nigh on impossible. We can all dream and have ambition but there are about eight teams in there who, over a length of the season, will always come to the fore.
'Then the rest are fighting for the other places. If we come ninth again, it will be phenomenal.
Read, white and Blue: City new boy Alexander Hleb
'I would judge that even better than last season. Finishing in the top 17 is our priority again.'
McLeish has challenged Birmingham's fringe players to show they are worthy of being amongst his first-choice selections in tonight's home Carling Cup clash with MK Dons.
The Scot will make wholesale changes with summer signings Nikola Zigic, Matt Derbyshire, Jean Beausejour and Martin Jiranek all set to start.
Keith Fahey, Michel and Alexander Hleb will also be included in the starting XI as McLeish rests several members of his current league line-up.
McLeish said: "I've got a squad of players I believe could be playing in the team every week.
'I've not got a first 11 plus 11 reserves. I've got a whole squad that can play in the Premier League.
'But the guys playing tonight have got to show what they can do and put pressure on the ones who started at the weekend.
'They've got to say 'I'll show the manager I'm worthy of a first-team place'. The gauntlet is being thrown down to these guys to show what they can do.'
Meanwhile, Birmingham striker James McFadden will undergo surgery to repair the knee ligament damage suffered during training on Friday in the next 48 hours.
McLeish confirmed: 'James will have surgery in the next couple of days and we will have a better idea of the recovery time after that.
'I think this season would have been a huge season for him. Last season was his first full season and would have strengthened him physically and psychologically as well.'
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