Williams, 23, has penned a three-year deal, the Blues announced.
"Without a doubt Lloyd is a key player for us," Blues rugby director Phil Davies said. "Lloyd is vitally important to the squad, we build a team around people like him."
He added: "He is establishing himself in the Wales squad now, and our aim for him is to go with Wales to the next World Cup as the number one scrum-half."
Williams has won 10 caps, including two as a replacement during this season's RBS 6 Nations Championship, and was a member of Wales' 2011 World Cup squad.
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