The 19-year-old Blues goalkeeper will remain with the Skrill Premier League side up to and including 26 April, 2014.
The Imps play Barnet at home on 26 April, in their final match of the regular campaign.
Since joining the Sincil Bank outfit on a youth loan during the middle of last month, Townsend has made six appearances for David Holdsworth's side.
Lincoln have won three, drawn two and lost just one of those games. They are currently seven points off a play-off spot.
At the weekend they picked up another three points with a 2-0 home win against Braintree, despite being reduced to ten-men late in the game.