The 29-year-old defender and the club have reached an agreement to pay up the remaining months of his contract, which expires at the end of the season.
Babayaro has not played for the Magpies since the 1-0 defeat at Manchester City on March 31 through a succession of hamstring and back problems, as well as a lack of form.
The Nigeria international, who played Champions League football for Anderlecht as a teenager, arrived at St James' Park in January 2005 in a £1million switch from Chelsea as Graeme Souness looked to strengthen his back four