Larsson, whose contract runs out in the summer, has been the subject of interest from Newcastle United and Blackburn Rovers during the transfer window.
A deal failed to materialise however and now the former Arsenal trainee will remain at St Andrew's for the next five months.
His Family
He will be at the forefront of McLeish's plans for Wednesday night's Carling Cup semi-final second leg against West Ham United as on-loan David Bentley is ineligible.McLeish said: "Is Larsson here for the rest of season? Yes. There will be nothing happening in the next few days. It is great. It means another strong player in the squad.
"I don't think there is a great desire for Seb to leave the club but he has got to do what is right for him and his family.
"We must respect that and I'd love the fans to give him a rousing reception if he is playing.
"I've worked with guys on the verge of a Bosman transfer before and they down the tools - but Seb wants to play football.
"He has made that clear to me and it lets him escape from the madness that is surrounding his contract talks and the future."
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