The 30-year-old, who was Steve Evans' marquee signing in the summer, has had a torrid time of it in South Yorkshire having been dropped and stripped of the captaincy after just eight games.
He has not featured since the September defeat to Brighton and has only made the matchday squad on one occasion since the exit of Evans.
He has courted controversy by taking to Twitter on several occasions to express his frustration at not being involved, while also had a reported bust-up with first-team coach Eric Black.
Halford, who has also played for Wolves, Sunderland, Brighton and Nottingham Forest, will now help Blues as they look to build a play-off campaign.
Attacker Chris Maguire has also left on loan, joining League Two Oxford until January.
The former Sheffield Wednesday man has made just six starts for the Millers this season.
