The 31-year-old will stay at Prenton Park until the end of the season.
James Vaughan has joined Sky Bet League One side Tranmere Rovers - on loan - for an undisclosed fee.
The 31-year-old has agreed a deal which will keep him at Prenton Park until the end of the current season.
City manager Gary Bowyer said: “We were approached by Tranmere, a club from the division above, and felt it was right to allow James to consider the offer on the table.
“I would never stand in the way of a player being given the opportunity to play at a higher level, which he expressed a desire to do.
“We believe the deal is right for Bradford City and wish James all the best.”