Gray has been the subject of multiple bids from Barclays Premier League newcomers Bournemouth, who it is thought made a fresh offer for the teenager last month
It has also been reported that Liverpool have a contractual right to match any fee for either Gray or fellow Blues youngster Reece Brown under the terms of Jordon Ibe's loan to City last season
Gray was into the final 12 months of his previous deal but he has now put pen to paper for a further two years until the summer of 2018
The 19-year-old made his breakthrough into the Birmingham first team during the 2014-15 campaign , scoring six league goals in 41 Sky Bet Championship appearances
Source : PA
Source: PA