The former Senegal midfielder, 34, started his first game for the Blues against Crystal Palace last weekend and earned them a point with the equaliser in a 2-2 draw.
Diop, who helped West Ham win promotion last season, has now agreed a new deal until January 17.
"I'm delighted that we have been able to extend Papa's deal into the New Year," Blues boss Lee Clark told the club website.
"I was absolutely delighted with his performance against Crystal Palace. He got stronger as the game went on and it was a typical goal of his.
"He's a big fella and he attacks the ball with aggression. People think he's just a big lad who intimidates the opposition, but he's a very good technician as well.
"Off the pitch he's great to have around the place and the lads have taken to him really quickly."