The 28-year-old midfielder has signed until the summer of 2007, which is when most of the first team's contracts also expire.
Peter Taylor has already publicly announced his confidence in Ashbee carrying on as captain next season in the Championship, a league that he is unproven in.
He joined City on a free transfer from Cambridge three years ago, making him the joint-longest-serving player in the squad, and has made 118 appearances in that time.