An annular billiard is a dynamical system in which a particle moves freely in a disk except for elastic collisions with the boundary, and also a circular scatterer in the interior of the disk. We investigate stability properties of some periodic orbits in annular billiards in which the scatterer is touching or close to the boundary. We analytically show that there exist linearly stable periodic orbits of arbitrary period for scatterers with decreasing radii that are located near the boundary of the disk. As the position of the scatterer moves away from a symmetry line of a periodic orbit, the stability of periodic orbits changes from elliptic to hyperbolic, corresponding to a saddle-center bifurcation. When the scatterer is tangent to the boundary, the periodic orbit is parabolic. We prove that slightly changing the reflection angle of the orbit in the tangential situation leads to the existence of KAM islands. Thus we show that there exists a decreasing to zero sequence of open intervals of scatterer radii, along which the billiard table is not ergodic.A billiard is a dynamical system where a point particle moves with constant velocity inside a domain and experiences elastic collisions with the boundary of the domain. The shape of the boundary determines the dynamics of the billiard. Billiards in a disk on a plane are completely integrable, while annular billiard tables consisting of a particle confined between two nonconcentric disks generically display mixed phase space due to a family of regular orbits that never touch the scatterer. Billiard models find applications in a variety of problems in statistical 1 , classical and quantum 2 physics. In this paper, we consider annular billiard tables formed of a small circular scatterer placed in the interior of a unit circle; this is a popular geometry for microwave billiard experiments 3 . Circular boundaries allow us to analytically examine linear and nonlinear stability of some periodic orbits. Depending on the parameters of the problem, we find that there exist linearly stable orbits of arbitrarily large period. We show the existence of a saddle-center bifurcation as the parameters vary, corresponding to a change of stability from linearly elliptic to saddle type. Placing the scatterer tangentially to the external circle creates a cusp that is a source of singularities in the billiard. We use KAM theory to establish that in the cusp case, the periodic orbits are nonlinearly stable.