The 26-year old defender spent time on loan with the Victory last season and has now signed a three-year deal to remain with the two-time A-League champions.
"Mark is an uncompromising player who provides great versatility to the playing group, as he is equally comfortable in defence as he is in central midfield," Melbourne head coach Ange Postecoglou said.
"He left a real impression on the group during his time at the club last season and from that perspective we're delighted to have him back in a Victory shirt."
Milligan added: "Last season, while the club didn't quite have the success they had hoped for, I really enjoyed my time in Melbourne and I'm excited to be coming back.
"Ange (Postecoglou) has made a few really good signings, so I think there's a lot to look forward to next season and hopefully, as a group, we can bring plenty of success back to Melbourne Victory."
Milligan kicked of his A-League career with Sydney FC in 2005 before joining Newcastle Jets in 2008 and has since spent time with Chinese Super League club Shanghai Shenhua and JEF prior to his move to Melbourne.