The 29 year old signed on loan for the Whites in September and has impressed manager Simon Grayson in his seventeen appearances so far this season.
"Danny is a versatile player and is a good addition to the squad. He has shown people what he is about and it's good to have him on a permanent basis," the Leeds boss said.
Pugh spent two years with Leeds between 2004 and 2006 before moving to Preston North End in a £250,000 deal. He signed for Stoke in 2008 but has struggled to hold down a starting position.
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