The versatile Chilean, who can play anywhere on the right flank, made 29 league appearances for the Old Lady after joining from Udinese, lifting the Serie A title twice.
Isla becomes Harry Redknapp's fourth signing of the summer, following the arrivals of Rio Ferdinand, Steven Caulker and Jordon Mutch.
"He's a top player and we're delighted to have him here," the veteran manager told the club's offial website.
"He showed his quality in the World Cup for Chile and it's a great loan signing for us. He's a versatile player, he's full of energy. I'm confident he'll be a really big asset for us this season."