Bacca, who signed for Milan in 2015 after two seasons at Sevilla, was the Serie A side’s standout player during a disappointing season.
"The deal includes an option to buy the player once the campaign is finished," Villarreal said in a statement.
Bacca, 30, has scored 165 goals in 336 games in his career, with 13 in 39 coming for Milan last season.
(Reporting by Rik Sharma, editing by Larry King)
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