O'Connor couldn't agree terms with cash strapped City, who have been looking to reduce wages substantially this summer.
Chief executive Jonathan Fuller was "disappointed" with the outcome, saying: "The decision is final and binding to both clubs, there is no right of appeal.
"We feel for a 23-year-old with his experience, the fee is a steal. Three years ago, Albion offered £750,000 for him and since then he has played 150 more games and established himself in the First Division."
