The 24-year-old has signed a contract running until the summer of 2029 with the Wolves.
Etim initially joined Midtjylland from Portuguese club CD Mafra in the summer of 2025 but spent just six months at the club before being sold to Fredericia during the winter transfer window.
During his spell away, he scored four goals and one assist in 14 appearances.
The Nigerian expressed his delight at returning to Midtjylland as he looks to continue his development.
“First of all, I really had a good time in Fredericia. I felt welcomed and I got a lot of playing time, which has been important for me and my development,” Etim stated.
“I am moving back to FC Midtjylland, and it is a decision I am really happy about. I am taking with me all the experience I have gathered in Fredericia, and I am ready to give it my all from day one.
“I am looking forward to becoming part of everyday life at FC Midtjylland again, and most of all I am looking forward to playing for titles and the Europa League. These are the scenes I want to be on, and I am ready to contribute to us achieving them.”