The 28-year-old striker had been pursued by both Esteghlal and Persepolis but the Asian Champions League quarterfinalists have won the race for his signature
Khalatbari, 28, joins the Iranian champions after spending time on loan at UAE outfit Al Wasl last term from Qatari club Al Gharafa.
The former Zob Ahan man can play as a striker or winger, and also netted a dramatic late winner for Iran in June's 1-0 World Cup qualifying victory away to Uzbekistan.
Sepahan are due to face Saudi Arabian club Al Ahli in the ACL quarterfinals, with the first leg to be played in Isfahan on September 19.
The Isfahan club recently lost ACL topscorer Bruno Cesar to UAE's Al Nasr, while centre backs Mohsen Bengar and Jalal Hosseini both left for Persepolis.