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Sunderland and Newcastle fight it out for unsettled Birmingham winger Seb Larsson

By SPORTSMAIL REPORTER Updated: 20:57 EST, 6 January 2011

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Sunderland are prepared to offer Sebastian Larsson an escape route from Birmingham after the Sweden international turned down a new deal from Alex McLeish, but face competition from Newcastle.

The former Arsenal midfielder has six months left on his contract at St Andrews but has turned down improved terms from Birmingham.

Sunderland manager Steve Bruce is prepared to pay £1million for the 25-year-old.

Negotiations: Larsson (left) has seen talks about a new Birmingham deal break down

McLeish was last night trying to achieve a compromise with Robbie Keane over his move to Birmingham City after Harry Redknapp blocked a loan move to West Ham.

The Scot was attempting to broker a deal with the Republic of Ireland international that would allow his family to remain near the capital as part of his £7m switch from Spurs.

Birmingham were still hopeful of securing Keane last night, despite the club targeting Manchester City forward Jo as a potential replacement.