In Penny et al. [Penny, W., Ghahramani, Z., Friston, K.J. 2005. Bilinear dynamical systems. Philos. Trans. R. Soc. Lond. B Biol. Sci. 360(1457) 983-993], a particular case of the Linear Dynamical Systems (LDSs) was used to model the dynamic behavior of the BOLD response in functional MRI. This state-space model, called bilinear dynamical system (BDS), is used to deconvolve the fMRI time series in order to estimate the neuronal response induced by the different stimuli of the experimental paradigm. The BDS model parameters are estimated using an expectation-maximization (EM) algorithm proposed by Ghahramani and Hinton [Ghahramani, Z., Hinton, G.E. 1996. Parameter Estimation for Linear Dynamical Systems. Technical Report, Department of Computer Science, University of Toronto]. In this paper we introduce modifications to the BDS model in order to explicitly model the spatial variations of the haemodynamic response function (HRF) in the brain using a non-parametric approach. While in Penny et al. [Penny, W., Ghahramani, Z., Friston, K.J. 2005. Bilinear dynamical systems. Philos. Trans. R. Soc. Lond. B Biol. Sci. 360(1457) 983-993] the relationship between neuronal activation and fMRI signals is formulated as a first-order convolution with a kernel expansion using basis functions (typically two or three), in this paper, we argue in favor of a spatially adaptive GLM in which a local non-parametric estimation of the HRF is performed. Furthermore, in order to overcome the overfitting problem typically associated with simple EM estimates, we propose a full Variational Bayes (VB) solution to infer the BDS model parameters. We demonstrate the usefulness of our model which is able to estimate both the neuronal activity and the haemodynamic response function in every voxel of the brain. We first examine the behavior of this approach when applied to simulated data with different temporal and noise features. As an example we will show how this method can be used to improve interpretability of estimates from an independent component analysis (ICA) analysis of fMRI data. We finally demonstrate its use on real fMRI data in one slice of the brain.