The 20-year-old's existing contract had been due to come to an end in June 2016, but the new one runs until the summer of 2019.
This season has seen Solomon-Otabor make his Blues First Team breakthrough, with his debut coming in the Capital One Cup second round victory against Gillingham last August.
He has subsequently gone on to make 16 appearances - three of them starts and 13 of them off the substitutes' bench.
He scored his first and only senior goal to date, which was a fantastic solo effort, in the 5-2 thrashing of Fulham at Craven Cottage in November.
The departure of fellow Blues academy graduate Demarai Gray to Premier League side Leicester City last week has further enhanced Solomon-Otabor's opportunities at the Club.
Born in London, the pacy midfielder was with Crystal Palace as a youngster, before being released by the Eagles and then picked up by Blues.
In June 2014, he spent a spell out on loan at non-league Oxford City, where he made a total of 12 appearances.
By nature of his parents' country of birth, Solomon-Otabor is eligible to play for Nigeria and last year was invited to attend trials for Nigeria's Olympic team, where he trained with the team ahead of their 2015 All-Africa Games campaign.