Phillips, who joined Blues in the summer of 2008 from West Brom and has scored 18 goals in 62 appearances, has now pledged his future to the club, extending a career which has also taken in stints with Watford, Sunderland, Southampton and Aston Villa.
Phillips said: "I want to stay as high in the game as I possibly can for as long as I possibly can and there's no higher place to be than the Premier League so to stay at Birmingham where I am happy and settled.
"Towards the end of last season I got more time on the pitch, coming on making an impact, and I would like to try and emulate that.
"I know there is going to be more competition for places but I still believe in my abilities. I am still fit enough and strong enough and the manager believes that because he has offered me the year. It's down to me to repay that.
"I am looking forward to the season starting and we will see how it pans out.
"There were offers from other clubs but I want to stay here. I enjoy working with the gaffer and get on well with the lads and the supporters so there was no decision to make.
"The new lads will have to adjust straight away to the team spirit and banter which I'm sure they will and there's no reason why we can't have another good campaign."