Green damaged his cruciate ligament in training last week and will not return to action before the end of the campaign.
He has scored twice in 12 appearances since his summer move from Mansfield Town and Birmingham boss Lee Clark acknowledged the injury is a 'hammer blow' for the 26-year-old.
"Unfortunately we've had some bad news on Matt Green," Clark told the club's official website.
"He has done his cruciate ligaments and will be out for the foreseeable future, he certainly won't come back this season.
"So we have lost Matt for the rest of the season which is hammer blow to us but, more importantly, a hammer blow to the lad.
"He has been working extremely hard. It has been a little bit up and down for him. He has had some great highs, where he has really looked very good for us. At other times, bridging that gap has been a bit tough. But we love his attitude and for him to have this setback, it's a big blow.
"It (the injury) was done on Thursday in training during the last part of the session. He was looking really, really bright and was coming back into my thoughts in regards to being involved in the 18 on Saturday at Huddersfield but this injury has taken him away from us.
"We have got him and Neal Eardley out now but what I do know is that I have got a terrific medical team who can help those lads come back stronger than they ever were."