The centre-back becomes the second first-team signing of the Valerien Ismael era.
Clarke joined Brighton from Portsmouth for around £4million back in 2019.
But he has spent the last two seasons impressing on loan in the Championship with Derby.
“I’m really excited by the challenge" Clarke said.
“As a player, you play football to achieve success."
“This is a club which is looking to bounce straight back to the Premier League and has been promoted from this division plenty of times before.
“I want to give my all to help Albion achieve success this season.”
The defender, who began his career with Ipswich, hasn't actually made a first-team appearance for Brighton.
And the 24-year-old leaves the Amex Stadium once again with Albion sealing a deal to sign him on loan.
New boss Ismael has tended to play with a back three throughout his managerial career.
He already has Semi Ajayi, Kyle Bartley, Dara O'Shea and Cedric Kipre in his ranks.
But the boss needs extra competition in that area if he is to stick with his favourite system.
And now Clarke will join Ajayi, Bartley, O'Shea and Kipre in battling for a place at the heart of Albion's defence next season.
Meanwhile, the Baggies played their first game under Ismael yesterday when they took on Salford in a behind-closed-doors friendly.
The practice match, which was played at the club’s training ground, saw more than 30 players feature across three 45-minute halves.
Summer recruit Alex Mowatt was one of those involved.
The former Barnsley midfielder featured for just under an hour.
Returning loanees Kenneth Zohore and Cedric Kipre also played for the Baggies.
Albion’s first public outing under Ismael will be this Friday when they travel to take on Woking in a friendly.
The match is being held to commemorate the non-league side’s famous FA Cup victory over the Baggies back in 1991.
Tickets are now on general sale for the match that is taking place at the Kingfield Stadium and will kick-off at 7.45pm.
They are priced at £12 for adults and £6 for under-16s.
The match is all-ticket with no cash admission on the day.