It was Blues' first home success of the season and the first time they have ever beaten Fulham in the Premiership at St Andrew's.
However, they certainly made hard work of their task but there was huge relief at the end as suddenly the club's Premiership future took a positive upward move, although they are not out of trouble just yet as they face the likes of Manchester United, Chelsea and Tottenham in the coming weeks.
Manager Steve Bruce, who has been in charge of Birmingham for four years on Monday, drafted in youngster Marcus Painter for his debut at left-back - one of five alterations made from the side defeated by West Ham last Monday.
The changes in Blues team were clearly necessary in an attempt to head off a humiliating and disastrous new year but they ran up against some determined opposition in Fulham.
Once again Blues lacked a vision to exploit Fulham's equally dismal away record which has so far failed to produce a single win on the road this season.
Despite some determined play the policy of playing with only one striker in Emile Heskey was far from successful in the first half and as a result Fulham were rarely put under any real pressure until Jermaine Pennant appeared early in the second half.
Heskey, in fact, had only one opportunity and he was not aware of the opening. He gained possession with his back to Fulham's goal when keeper Mark Crossley advanced well off his line.
Heskey, however, failed to spot the opportunity when an over-head kick could have produced a goal. Instead, he played out a lame pass to Damien Johnson.
Fulham were no better as an attacking unit in a generally negative first half when the decisions of referee Uriah Rennie were often disruptive to both teams.
The Cottagers are rapidly building a reputation as offside specialists and this aspect of their play was clearly evident as Blues repeatedly fell into the trap.
There was a need for some reassurance but it was not forthcoming in a game of few clear cut chances as both teams were desperate not to fall deeper into trouble.
Early in the second half Blues drafted in Pennant in place of Stan Lazaridis and attempted to utilise his pace in a striker's role.
He certainly injected more life into their attack as he produced the first real shot on Fulham's goal and seconds later Heskey's diving header from David Dunn's long cross was saved by Crossley.
The Fulham keeper was again in action in the 70th minute when Dunn attempted a first-time shot from outside the penalty area and Crossley had to fling himself to his right to keep out the effort.
Crossley, however, had little chance with Butt's matchwinner in the 84th minute winner.
Substitute Jamie Clapham produced the left-wing cross which Heskey headed back into the middle for Butt to apply the finishing touch for only his second goal since his move from Newcastle, but what an important one it proved to be.