News of McLeish's decision to extend his stay comes on the morningthe club announced the departure of 'football consultant' Sammy Yu.
Staying at St Andrews: Alex McLeish happy at Birmingham
McLeish joined Birmingham in November, 2007, and guided the club to ninth at the end of last season - their highest finish in 51 years.
A statement on the club website said: 'Club president Carson Yeung has rewarded that success with a new improved deal for McLeish, after giving the green light for him to bring in Ben Foster, Nikola Zigic, Enric Valles, Matt Derbyshire, Alexander Hleb, Martin Jiranek and Jean Beausejour in the August transfer window.
'That followed the acquisitions of Craig Gardner and Michel in January.'
Meanwhile, Sammy Yu has resigned as Birmingham's football consultant after nine months in the post.
Yu worked closely with Carson Yeung in ensuring his £81.5million takeover of the Blues went through last October.
He initially was given the role of vice-chairman of football and worked alongside manager Alex McLeish at the club's Wast Hills training ground.
But he switched to his consultant post in December and has had less of a prominent role at St Andrew's in recent months.
Yu said: 'I think the time is right for me to step down. After four years being part of the whole deal, from the beginning, I have done my bit.
'It's time to release myself and I wish Birmingham City the best for the future.
'To be part of the club's history in a very important era is a highlight of mylife.'
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