The two clubs "have reached an agreement for the release of the player Fernando Gago until the end of this season", a statement said on Valencia's website.
Former Real Madrid player Gago, who is unsettled at Valencia and appeared earlier this month to be on his way back to Boca Juniors, will strengthen coach Ricardo Gareca's squad as Velez bid for a second South American Copa Libertadores this year.
Velez won the Inicial Tournament, the first of two championships in the Argentine season, in December. It was their third crown under Gareca since 2009.
