Liverpool boss Brendan Rodgers has insisted Mario Balotelli will not be going out on loan in the January transfer window.
The Sweden international, 21, has been signed in time to be involved in the Clarets' clash with Charlton on Saturday.
Kacaniklic, who has made 15 Premier League appearances for Fulham this season, scoring three times, is reunited with Sean Dyche, who he played under at Watford last term.
"He is an exciting young prospect and something different to what we have, which is important. He's dynamic and can mix up his game," Dyche said.
"He was with us at Watford last year and was then called back and went into Fulham's first team, which is obviously a good sign.
"He has started this season in the Premier League and got himself a couple of goals.
"It's a good link with Fulham. They know their player was looked after at Watford. He is aware of us as a staff and knows he will get looked after here.
"That's one of the key things. We do look after players here. We look to develop our own and anyone who joins us."