The attacker has agreed a Standard Loan, until 3 January, 2021.
Bailey, who came off the bench in Blues opening game of this season, joined Forest Green in January for a temporary spell.
However, his time there was ruined as, after five games and one goal, he got injured then football was suspended due to COVID-19.
Former Blues midfielder Mark Cooper is Forest Green's Head Coach and has guided them to sixth in League Two at present.
Bailey, 20, had a good pre-season at Blues but with increased competition in the front areas he has found openings limited the past few weeks.
Head Coach Aitor Karanka sees the loan move as a valuable avenue to assist Bailey, who made his big Blues breakthrough last season.
In all, Bailey has made eight senior appearances for Blues and memorably netted his first goal for the Club with an 89th minute winner against Middlesbrough a year ago, after coming on as substitute.