The Albion midfielder will head back to the Bundesliga outfit on a season-long deal.
Gruda enjoyed a decent loan stint at the same club in the second half of last season.
His return was widely anticipated – with an expectation that he could remain on a longer-term basis.
Albion sporting director Mike Cave said: “Brajan had a good second half of the season with Leipzig and was keen to explore the opportunity of remaining there for the coming year.
“This is a move that allows Brajan to continue to secure regular playing time at a good level, in an environment he knows well.”
Gruda helped Germany under-21s to the Euros final this time last year and highlights for Albion in the first half of 2025-26 included important goals in wins against both Manchester clubs.
But he has only fleetingly produced his best in the Premier League since signing early in the 2024-25 campaign.
The 22-year-old had three goals and three assists in 14 appearances for Leipzig.