"I knew Larsson's contract was up at at the end of June, so obviously I was interested because he's a good footballer, good passer," he said.
"He would have been good for us, but he's staying at Birmingham for now, but in June the door will still be open."
Birmingham have signed a ready-made replacement for Larsson in David Bentley, who has joined the club on loan for the remainder of the season, but Blues boss Alex McLeish was not prepared to let the Swede leave St Andrews.
"I thought any deal would happen in June anyway," added Houllier of his prospects of signing Larsson. "Remember, Birmingham have qualified for the Carling Cup final."
I guess survival is still the best Villa can hope for, but there could be the FA Cup, and the signs are good for next season
Andy Grays Charisma Coach
Meanwhile, the Villa boss has made it clear that Stephen Ireland will not be leaving the club before the end of the January transfer window - but was less forthcoming on the prospects of Stephen Warnock remaining.
"Will Ireland still be here in February? Oh, yes. Do I see him going anywhere? No," added the Villa boss.
"He should be back next week from his injury."
Left-back Warnock appears to have fallen behind Ciaran Clark and Nathan Baker in the pecking order at Villa and has been linked with a return to Liverpool.
"He trained well on Friday morning and is competing to get his place back," said Houllier.
"Ciaran Clark has done well and so has Nathan Baker but, yes, there are two or three days left before the end of the transfer window. Anything can happen."
Villa have signed Darren Bent and Jean Makoun on permanent deals in January, as well as signing Kyle Walker on loan, while numerous players including Steve Sidwell, John Carew and Curtis Davies have left the club.
Source: BBC Sport