The 24-year-old Croatia international was a free agent after his contract with Serie A side AC Milan was terminated last month.
Halilovic was dubbed the ‘Croatian Lionel Messi’ after breaking out with Dinamo Zagreb in his homeland and he joined Barcelona to much fanfare in the summer of 2014.
Halilovic however failed to establish himself in the Blaugrana first team and he was shipped out on loan to Sporting Gijon, Hamburg SV and Las Palmas before joining AC Milan in the summer of 2018.
His story with the Rossoneri was not different to the one at Barca and Halilovic took in temporary spells at Standard Liege and Heerenveen before his release last month.
Halilovic will be looking to kickstart his career once again with the move into the second tier of English football.
A statement announcing the arrival of Halilovic to the Saint Andrew’s Stadium read: "Blues have completed the signing of highly-rated Croatian international, Alen Halilovic, on a short-term contract.
"The attacking midfielder joins until June 2021 having left Italian giants, AC Milan, when his contract expired last month.
"Halilovic will link up with fellow countryman Ivan Sunjic, having been touted as one of Croatia’s most promising stars.
"At just 24 years old, the talented technician has already been snapped up by the likes of Barcelona and AC Milan, and will join Blues aiming to fulfil his undoubted potential.
"Halilovic, who will wear No.35, will not be made eligible in time for tomorrow evening’s Sky Bet Championship fixture with Luton Town."
Halilovic could make his debut against Millwall this weekend for Birmingham, who lie 17th on the Championship table.
