"I just want to play more games and get some more fitness under my belt," Williams told the club's official website. "Hopefully, I can contribute to the team and help move this club away from the relegation zone. "It should work well for both parties and I am looking forward to the matches."
The Blues left-back signed an initial one month deal with his former club on January 1st and that deal was set to end after Posh's game against Stockport this weekend.
"I have agreed with Birmingham and Tom to extend his deal for another month.
"That will give us another option on the left-hand side.
"Tom has had a few injuries and wanted to get some match fitness under his belt, so this is a good opportunity for him," former Blues boss, and now manager at Peterborough United, Barry Fry told his clubs official website.
Williams has played in just four games for Blues since joining the club from Barry Fry's side in March 2002 and spent the whole of last season and the early part of this season on loan at second division QPR.
After an early season Injury Willams returned to Reserve team action by playing a couple of games for Keith Bertchins side prior to his loan move to London Road.