Fellow Spanish side Getafe were also mentioned as a possible destination.
"I think I've made a very good decision," Wakaso said at his unveiling at the Estadio de Mendizorrotza on Tuesday.
"I want to help the team do well and achieve goals as the last season.
"La Liga is the best competition in the world and I want to contribute to make the team have a good season and achieve the goals.
"I like to play midfield but I can play in other positions. I'm really looking forward to it."
Although contracted to Greek giants Panathinaikos, Wakaso spent the second half of last season on loan at Granada, making 11 league appearances and scoring once.
Prior to his recent move, he terminated his contract with the Greens.