The fast-food chain, located outside the Mander Centre and fronting onto Queen Square, suddenly shut on Wednesday.
Signs and branding have already been removed outside with windows covered up at the closed unit.
KFC today said it is looking at open a smaller outlet within the city centre but gave no further details at this stage.
The company currently operates three drive-thru restaurants in the city, with sites on Penn Road and Bushbury Lane and at Bentley Bridge.
A KFC spokesperson said: “We’ve had a great run in Mander Centre but our lease has come to an end.
"We’re now on the lookout for a potential smaller site to open in the town centre.
"Fans looking for their chicken fix can head to our nearby KFC drive-thrus on Penn Road, Bushbury Lane, or Bentley Bridge."
The Mander Centre did not wish to comment when approached by the Express & Star.
It comes as a blow for the Mander Centre which is battling back after the departure of Debenhams was announced.
A new House of Fraser concept store, featuring a mix of brands including Flannels, Sports Direct and USC, is expected to open in its place next year.
And a new B&M store opened in part of the old BHS store, fronting onto Dudley Street, this week.
But the centre saw its Starbucks coffee shop close in August leaving an empty unit on its main Dudley Street entrance.
KFC had to close its city centre outlet for a day in August after a large cannabis factory was found in a neighbouring building.
And the same restaurant was forced to temporarily close in February 2018 when it was among the outlets nationally to run out of chicken supplies.