The forward's stay was due to expire next week but the two clubs have now agreed terms which will ensure Gallagher is around for the remainder of North End's promotion push in this campaign.
The 29-year-old, who previously spent time on loan at Deepdale in 2007, has scored three goals in six appearances during this spell, all the goals coming in a 6-0 FA Cup win over Barnet.
"We are delighted to have extended Paul's stay with us," Preston boss Simon Grayson told the club's official website.
"Both he and the club were clear from the outset of his loan that we hoped the deal would be for longer than two months and I am grateful to Leicester for agreeing to let him stay with us.
"Gally's qualities have already been evident in the games he has played and he can play a big part between now and the end of the season."
Gallagher has just completed a three-game suspension and will return to the Lilywhites' squad for the Boxing Day clash at Carlisle.