Dickov, 35 ended last season on loan at Blackpool and had been linked with a permanent move to Bloomfield Road, however, he has now opted to rejoin the Foxes - who he previously played for between 2002 and 2004.
City boss Nigel Pearson told the club's official website: "Paul has all of the attributes you require to succeed as a footballer. He has tremendous spirit and I am delighted to have been able to bring him here.
"He is the sort of player who never believes the team is beaten. He breeds fear into defences and I am sure he will be a tremendous asset for us.
"He will give us everything and I am sure he will be a big favourite with the fans here once again."
Dickov scored 37 goals in just under 100 appearances for City during his first spell with the club.