The 21-year-old New Zealand striker has impressed during a three-month loan spell at Millwall, who also put in a bid to sign him on a permanent basis but Wood has opted to join their Championship rivals Leicester.
Wood last played for the Baggies in August 2010, since when he has had loan spells with Barnsley, Brighton, Birmingham, Bristol City and most recently, Millwall.
"Chris joined our Academy as a 15-year-old and has progressed through the ranks," West Brom sporting & technical director Dan Ashworth told the club's official website.
"We have had fierce competition in the forward positions over the past few years, which means Chris has been unable to establish himself in the first team.
"He's now had two or three really good spells out on loan and this is a good time for him to begin a new, permanent challenge.
"Chris is a great lad and we're particularly grateful for his contribution to our automatic promotion success of four seasons ago.
"We wish him all the best at Leicester."
Meanwhile, the Baggies have recalled midfielder George Thorne from a loan spell at Peterborough and he is included in the squad to face Manchester United on Saturday.
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