CHELSEA have emerged as a leading contender in the race for David Dunn as Birmingham today ruled out increasing their bid for the Blackburn midfielder.

The London club have earmarked Dunn as a replacement for England Under-21 international Jody Morris, who has been released by boss Claudio Ranieri. They had targeted West Ham's Joe Cole but have been put off by his £10m valuation by the Hammers.

Everton and Aston Villa are also keen on Dunn, but Chelsea have the lure of Champions League football next season.

The Stamford Bridge club have not yet made a bid for Dunn, but sources in London say they are monitoring developments closely, and may move as soon as next week.

Birmingham chairman David Gold has warned Rovers that he won't be held to ransom over Dunn - and has urged them to re-consider his club record offer of £5.5m.

He has told them that the payment plan offered by Blues is realistic. The offer is made up of a £3m downpayment, followed by further staged payments over the course of a four-year contract, dependent on the Blues remaining in the top flight.

Gold said: "We won't be held to ransom over this. We have pushed the boat out for Dunn.

"We think he is a top-of-the-range buy and the offer reflects that. We did it to try and steal a march on other clubs who may have been interested in him.

"In the past, we may have been tempted to increase the offer. But football's business is not done like that anymore.

"Prudency is the watchword these days and I make no apologies for that.

"Actually, in the current financial climate in which football is operating, we believe our offer should be very tempting.

"If they think they are going to get that money anywhere else, then good luck to them. Football is not awash with cash anymore.

"In fact, I'm struggling at the moment to think of a bigger transfer that has taken place recently.

"Now, Arsenal didn't have a problem with Matthew Upson's transfer fee being based on success, nor did Spurs over Stephen Clemence and neither did Ipswich over Jamie Clapham."

Everton boss David Moyes has made Dunn his number one target, and will look at tabling a bid as soon as he returns from holiday.

Garry Flitcroft yesterday officially signed a new three-year contract to keep him at Ewood.

The Rovers skipper announced his intention to stay at the club in the Evening Telegraph last week.