The 21-year-old, who had a previous loan spell with the Latics back in 2005, was set to team up with Sheridan's squad in time for the 2-0 weekend win at Macclesfield before a change of heart from Birmingham boss Steve Bruce.
Sheridan said: "I'd like Neil in as soon as possible. He's a Birmingham City player so I can't say too much.
"But I want him here and the lad wants to be here, so hopefully we can get something sorted out."
It is believed Bruce stalled on releasing Kilkenny after deciding not to pursue his interest in £3million-rated Tottenham midfielder Hossam Ghaly.