Kilkenny concluded his previous loan spell at Oldham Athletic during the Latics' 3-1 victory over Leeds on New Year's Day and his performance in the centre of midfield convinced Dennis Wise to contact Birmingham.
Oldham were expected to sign him permanently and he also had an offer from Doncaster Rovers.
Born in England, but raised in the Australian city of Brisbane and once eligible to play for the Republic of Ireland, he made his international debut for the Socceroos against Liechtenstein in the summer of 2006.
He started his career with Arsenal before Steve Bruce took him to St Andrew's in 2004 where he made 26 appearances.
The 22-year-old is United's second signing of the transfer window following Finnish winger Sebastian Sorsa into Elland Road.