The deal to bring the 30-year-old Nigeria international to Old Trafford contains no option to buy.
Ighalo, who is still in China but is expected to fly to the UK in the next few days, scored 39 goals in 99 matches for Watford between 2014 and 2017.
“Odion is an experienced player,” said United manager Ole Gunnar Solskjaer.
“He will come in and give us an option of a different type of centre-forward for the short spell he’s staying with us.
“A great lad and very professional, he will make the most of his time here.”
Ighalo moved to the Chinese Super League in 2017, first with Changchun Yatai. After two seasons he moved to Shanghai Shenhua and has scored 10 times in 19 games.
His form for his country has been eye-catching, finishing as top scorer in African Cup of Nations qualifying with seven goals, before scoring five at the tournament during the summer.
It is understood there was interest from other Premier League clubs but Ighalo wanted to play for United.
He is United’s first senior loan signing since Radamel Falcao’s arrival from Monaco in 2014.
Earlier on Friday, United ended interest in Bournemouth’s Josh King but did sign Southend United goalkeeper Nathan Bishop for an undisclosed fee.
United accept Ighalo does not fit the club’s policy of trying to sign long-term targets, such as Bruno Fernandes, who moved to Old Trafford from Sporting Lisbon on Thursday.
However, this move has been done to cover the short-term injury to Marcus Rashford and they could not go the rest of the season without bringing in a replacement.
England international Rashford, 22, is out with a stress fracture in his back sustained after coming on as a substitute during the FA Cup third-round replay win against Wolves on 15 January.