Caddis spent the majority of last season on loan at St Andrew's, making 28 appearances before returning to Swindon in April.
The Blues lost first-choice full-back Neil Eardley to a long-term knee injury last week, prompting them to snare Caddis on a three-year contract.
Clark has declared that he is delighted to finally land a player he wanted during the close season, insisting that Caddis will form an important part of his first-team plans.
He told the club's official website: "I'm delighted to bring Paul back to the club. He's obviously a player that we know very well and certainly not a gamble as he did the business for us last season.
"With Neal Eardley's situation it was important that we brought in another defender and, to add to that, Paul is a specialist right-back. When Neal returns we are going to have ourselves two very experienced right-backs."
Birmingham have made an indifferent start to their Championship campaign, winning one of their opening five league games.