The midfielder has been signing one-month deals with the midlands club since first arriving at St Andrew's in October.
He penned his latest one in mid-December having capped his only start for City with a late equaliser to salvage a 2-2 draw against Crystal Palace just days earlier.
But a hamstring injury means he has not featured for Blues since and City boss Lee Clark is unable to offer him another extension due to the cash-strapped club's financial struggles.
Diop, 34, made one start and one substitute appearance for Birmingham.
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