The 39-year old striker, who helped the Eagles achieve promotion whilst on loan last season, has emerged as a real target for the South London club according to chief executive Phil Alexander.
"Ian's (Holloway) keen to keep him, there's discussions to be had with Kevin," he told Sky Sports News.
"Even at 40, I still think he could do a job in the Premier League from being part of the team. He's a great guy to have around.
"Could he come on and do a job in the last five, 10, 15 minutes of a game? I'm sure he could.
"Those discussions will be had and I'll be hopeful that he'll sign a contract with us."
Former Sunderland, Southampton, Aston Villa, West Bromwich Albion and Birmingham City man Phillips scored seven goals in 16 appearances for Palace including the penalty which gained them promotion from the Championship playoff.