Collins has spent the past month at the Greenhous Meadow, making eight starts, and will now remain until the end of November after a deal was struck between the two clubs.
The 24-year-old has also been granted clearance to play in Saturday's FA Cup first-round tie at non-league Hereford.
Shrews boss Graham Turner told the club's official website: "The crucial thing was we wanted him to play in the FA Cup. It would have been no good renewing his loan this week if he wasn't allowed to do that.
"But Keith Hill, the manager of Barnsley, has allowed him to play on Saturday so we've re-signed him and it's all gone through."
Turner added: "Lee's done okay but I think he can be better. He's not played too many first-team games this season so he's been feeling his way into things and he's done alright. He's teamed up with Darren Jones and they look a decent partnership."