The 26-year-old joined the Super League side in 2016 on a three-year-deal and was loaned to Granada last season, but mutually terminated his contract, with reports suggesting he was owed £600,000, which included signing on fees and salaries.
At Granada, he made 11 appearances and scored one goal as well as providing one assist but his efforts weren't enough to help his side avoid relegation.
"Deportivo Alaves have signed midfielder Wakaso Mubarak. The midfielder arrives from Panathinaikos and has signed a contract for the next three seasons, after passing the relevant medical examinations," a club statement read.
"The new player can play both in the centre and the wings and has an important experience in La Liga after passing through other clubs.
"Deportivo Alaves want to welcome Wakaso and wish him good luck in his new stage as Albiazul. You are welcome," the statement added.
Wakaso, who began his career with Ghana Premier League giants Ashanti Gold, has previously played for Spanish sides Elche, Villarreal, Las Palmas and Espanyol as well as spending time in Scotland with Celtic.
He is expected to join his new teammates for their pre-season tour in Europe.