Nabay, just 15 years old, joined the academy at St Andrew's in August 2006 and last summer accepted the club's offer of a two-year scholarship.
However, the England Under-16 international and his advisors have expressed a desire to leave Birmingham for family reasons and to continue his development by relocating to London.
Despite the best efforts of Blues and manager Lee Clark to convince the Sierra Leone-born player that his immediate future lay with them, Nabay is now in advanced talks with Fulham.
"I made it abundantly clear to Foday in several meetings with him that he had the potential to become the youngest-ever player to play for Birmingham City Football Club's first team this season at the age of 15," Clark told the club's official website.
"That was how highly I rate him and how highly the club rate him. We wanted him to stay but as a football manager I couldn't have done any more.
"I was offering him the opportunity that as long as he continued in the way he was with his development and continued to show the qualities that he has then there would be first-team openings for him.
"He's going to a super club in Fulham because I know them very well having spent seven great years there myself but I just wish we could have had the time to make him part of my current group.
"It wasn't to be, he's made the decision, we wish him all the best for future and we'll move forward."