The former Rangers and Scotland chief has been in talks with Blues officials over a new contract for some time, but as yet no deal has been agreed between all parties.
Birmingham were keen to reward McLeish with a new deal after guiding them to ninth spot last season on the back of winning promotion to the Premier League the year before.
The contract talks have been dragging on for a number of weeks now with Pannu claiming McLeish is asking for too much money.
McLeish is also thought to have fallen out with the Birmingham board following a jibe from Pannu that the Scot is "no Mourinho".
"I have been in talks with his representative and he was asking for a very large amount of money which I was not prepared to meet," Pannu told the Daily Star.
Pannu admits McLeish deserved a bonus for his performance last year, but he felt the Scot was still not the finished article.
"He has not been tried and tested yet," added Pannu. "The club was relegated, then promoted and last year we stayed up, so he has done well.
"But to suggest that he is in the top class like a Mourinho, well, he is no Mourinho yet. The ball is in his court."
McLeish, when asked about his contract situation, refused to discuss developments, saying: "I don't want to talk about it.
"We've signed three players and that's all I want to talk about."