The American international underwent medical tests in Monaco on Tuesday and now returns to the league where he shone last year.
Balogun has not featured in any of Arsenal's Premier League squads so far this season.
Balogun came through the Arsenal academy and was prolific at junior level for both club and country, before switching allegiance to play senior football for the USA.
He had attracted interest from London rivals Chelsea, with Inter Milan also enquiring this summer.
The 22-year-old had a strong loan at Reims last year, scoring 21 goals and finishing fifth in the race for the Golden Boot.
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