César Luis Merlo of TyC Sports had recently claimed the plater will move to the Bundesliga club in a deal worth €15m - his release clause - while he has now officially penned a five-year deal.
Strong reports this year had linked the Argentine with a move to Real Madrid earlier in January, with suggestions that a deal had been done but no move came to fruition.
River Plate boss Marcelo Gallardo admitted he could not stand in the way of Palacios joining Madrid if they wanted him.
“If Madrid came for him, how could I tell him not to do that,” Gallardo said this month, as cited by Diario AS.