Pannu was quoted yesterday saying McLeish was asking for "a very large amount of money which I was not prepared to meet" and that he was "no Jose Mourinho".
But Pannu insisted today the comments had not been meant as a criticism and that McLeish could sign a new contract as early as next week.
He told the Birmingham Mail: "This is all nonsense. We are just perhaps inches away from Alex signing a contract, possibly by next week.
"Our relationship is phenomenal, we are very strong and close, and I want to dispel this notion that there is anything wrong.
"In fact, I spoke to Alex about the Mourinho reference and we laughed about it. In the whole context of the interview I did, it would not have had a sting to it. But to take out the extract like that made it look worse than it was.
"Mourinho came up because I mentioned that the agent who made the initial approach to me about Alex and his contract represents Mourinho.
"Nothing was meant as a slight to Alex in the context of the conversation I had."
McLeish declined to comment on the situation at a press conference yesterday following the transfer deadline day signings of Alexander Hleb, Martin Jiranek and Jean Beausejour.
The Scot, who still has a year left to run on his current deal, is being rewarded for Birmingham's first season back in the Barclays Premier League that saw them finish ninth.
And Pannu is confident the saga will soon be brought to a successful conclusion, adding: "We have agreed figures, there is only one clause still be sorted out. It is not pay related."
McLeish, meanwhile, has revealed letters from Manchester United boss Sir Alex Ferguson and his Arsenal counterpart Arsene Wenger helped secure Hleb a work permit.
The former Gunners winger was initially denied a permit to return to England from Barcelona because his national team, Belarus, are ranked outside the top 70 in FIFA's world rankings.
But the Blues were successful with an appeal, and McLeish said: "Both Sir Alex and Arsene Wenger gave us a headed notepaper endorsement of Hleb's quality to play in England.
"I think the panel were pretty positive about it anyway. But we had to make sure the panel were aware that Hleb was always a target and it helps when you have got two top managers endorsing a particular player."