"I'm delighted that we've managed to bring Bakary back to Palace," manager Roy Hodgson said in a statement.
Sako scored three league goals in 16 appearances for Palace in his final season at Selhurst Park before breaking his ankle.
"He's a player with a huge amount of talent and as he showed when he was fully fit last year, he is able to provide a boost to our attacking options," Hodgson added.
"It's a particularly pleasing signing, because... he knows the club inside out and was such an immensely popular figure amongst the squad with his positive and upbeat attitude."
He is the second player to join Palace in January, following the arrival of goalkeeper Lucas Perri on loan from Brazilian side Sao Paulo.
Sako will be unavailable for Sunday's FA Cup game against Tottenham Hotspur, having played for West Brom earlier in the competition but could feature against Southampton on Jan. 30.
Palace are 14th in the league with 22 points from 23 games.
(Reporting by Shrivathsa Sridhar in Bengaluru; Editing by Christian Radnedge)
