The Ukrainian reigning champions also have an option to make the deal permanent.
His stay at the Estadi Montilivi outfit was marred by fitness issues and a dip in form, and thus, was unable to break into the plans of Pablo Machín. The pacy striker made only 12 league appearances and had no goal to show forth.
OFFICIAL: Shakhtar Donetsk have completed the signing of Olarenwaju "Larry" Kayode (24) from Manchester City on loan until the end of the season with an option to buy. pic.twitter.com/5NeKWiGhVK— City Watch (@City_Watch) March 2, 2018
However, in a bid to revive his career - and boost his chances of featuring for Nigeria at the Russia 2018 World Cup - another loan move to French outfit Amiens was tabled in the January transfer window.
'Administrative reasons' meant that the 24-year-old could not complete a switch before the closure of the winter window, but the French Ligue 1 newcomers remained hopeful of landing the former ASEC Mimosas marksman.
However, on Friday, Shakhtar confirmed a deal for the Nigeria striker on their official website.
"FC Shakhtar signed a deal with the Manchester City striker Olarenwaju Kayode," read a statement on club website.
"The loan agreement will be effective until the end of the 2017/18 season and includes the buyout option.
"He played for Luzern (Switzerland), Maccabi Netanya (Israel) and Austria Wien (Austria). At the Vienna-based club, he became the top scorer of the Austrian league 2016/17.
"In August 2017, he signed a four-year deal with Manchester City, England. Kayode spent the first half of the current season on loan at Girona FC [12 apps in the La Liga]."
Kayode will be hoping to recapture the sort of form that turned the head of runaway English Premier League leaders, Manchester City - especially with the World Cup a few months away.
Paulo Fonseca's Shakhtar side sit atop the Ukrainian Premier League log with 48 points from 21 games, leading their closest rivals, Dynamo Kyiv with six points. It is yet to see if their new signing would make the squad for the final fixture of the Ukrainian top-flight stage one against Karpaty on Sunday.