"I've signed a year extension and happy that it's all done and dusted," said Williams.
"It's where I wanted to finish off and I've made no secret about that.
"I did weigh everything up, whether to go to play in England or France or completely retire from the game in June.
"However, I'm still feeling well and playing well, and think I have something to offer the Blues next year."
The 2001, 2005 and 2009 Lion had been expected to leave the Blues after comments made by the club earlier this term regarding financial constraints affecting player recruitment and squad retention.
Williams had therefore been heavily linked with a move to London Wasps, where he would have joined up with fellow Welsh Lion Andy Powell, but talks between the 35-year-old and the club steadily improved and the he has decided to stay where he is.
"I'm over the moon that the club have come to an agreement that I will have my last season here," added Williams, who featured in all three Lions Tests against the Springboks last time out.
"In fairness (head coach) Dai (Young) never said that he wanted to release me and I totally understood the club's reasons for not doing things immediately.
"It wasn't a great couple of weeks, with the speculation and not being in the Wales squad, but I've tried to keep my head down and carried on playing for the region.
"I've been here since 1999, so I didn't really want to go anywhere else, I wanted to finish here, so I'm glad I've been given that opportunity."