James spent a successful spell earlier this season at Town’s Championship rivals Rotherham United, making seven appearances for the Millers.
The defender, who featured through the Red Devils’ pre-season tour last summer, will cover the loss of the injured Jack Robinson, who has returned to parent club QPR.
He has joined for the rest of the season and is in line to make his Town debut in next weekend’s derby at Sheffield Wednesday.
Town’s manager Chris Powell said: “It’s fantastic news for the club that we’ve been able to secure Reece’s services for the rest of the season.
“He excelled in a loan period in the Championship earlier this season and he possesses the quality that we need to cover for the unfortunate recent loss of Jack Robinson to injury.
“Once Jack was ruled out for the season, we’ve stepped up our search for a left-back and the board of directors didn’t hesitate in backing me in the market.
“Reece is comfortable at left-back or in a more advanced wing-back role, which suits our style perfectly.
“It’s great that we have completed the move early in the international break, too, as it will give him time to bed in with his new team-mates ahead of our game at Sheffield Wednesday.”
James, 21, scored twice in a 7-0 victory over LA Galaxy during Manchester United’s pre-season tour of the United States.