The former Derby man signed a short-term deal at the City Ground in February and made 13 appearances for the Reds in their failed attempt to survive in the Championship.
34-year-old Powell was one of 12 out-of-contract players axed by Gary Megson at the end of the season but told the club's official website: "I still feel as though I've got enough energy to keep playing and I'll look to keep on playing for another couple of years."