"I'm very pleased, it's like coming home," he said.
"I know the place, I had a great time here when I was here before, so I'm very pleased to have signed a new deal.
"There was a lot of interest from a lot of clubs but I decided to come here because I know the place and I can see Birmingham having a very bright future and I want to be a part of that.
"The football here is going forwards all the time, its improved even in the short period I haven't been here, so I'm delighted to be back."
Forssell also stated that he has no worries about the knee injury which kept him sidelined for seven months of last season.
"I've been fit now for the last two or three months and it feels good," he said.
"I had a medical today, everything went well and everybody knows I'm fit.
"I just want to forget about the knee and show everybody that I can score goals."