Peretz joins on a £6M fee after spending the second half of the season in England as he quickly became the first choice goalkeeper under manager Tonda Eckert.
The Israeli made seven appearances and trained alongside legendary goalkeeper and club captain Manuel Neuer.
The 25 year old made 26 appearances for Saints after joining on loan in January and lost just twice. He spoke on the move which he says he is delighted with.
“I’m super excited. For the last few months this was my home and we had so many good times, and also some tense times, but even in the last few weeks with how we stayed together you could really feel this home environment.
“That was, for me, the dealbreaker. Yes, it is my dream to play in the Premier League and on the highest stages in the world, but a bigger dream for me is to be there with Southampton. I really believe that we can be there and achieve that.”
Group technical director Johannes Spors also spoke on the move as the club seek to climb back up to the Premier League next season.
“We knew about Daniel’s qualities when we signed him on loan in January, and his impact on the team was clear for everybody to see. He has a confidence in his own ability that transmits to the players in front of him.
“I had several conversations with Daniel after our season came to an end. It was clear throughout these discussions that he remained committed to us, even with other options on the table. We are delighted to welcome him back to Southampton on a long-term contract and determined to build on the successes we experienced together last season.”
Reports claim the Saints are also pursuing a permanent transfer for Cyle Larin, who much like Peretz, spent the second half of the season on loan from RCD Mallorca.