Goal revealed on Thursday that the Black Cats were in talks for the 26-year-old, who had been made available by the Nerazzurri this summer.
Gus Poyet's side has paid an undisclosed fee to take the Argentina international on loan, making him the team's ninth acquisition of the summer.
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Liverpool center back Sebastian Coates had become the team's eighth shortly before confirmation of Alvarez's move, having joined on a similar loan agreement.
"I'm very happy to be here," Alvarez told the club's official website. "It's a great opportunity, a great club and I'm looking forward to playing in England and playing my part for Sunderland."