The 29-year-old returns to his home city looking to make an immediate impact as the Reds battle on without the injured Britt Assombalonga and Matty Fryatt and with Michail Antonio sold to West Ham United.
He featured as a late substitute when Brighton defeated Nottingham Forest on the opening weekend of the season but the summer arrival of strikers Tomer Hemed and Bobby Zamora had pushed O'Grady down the pecking order at the Amex Stadium.
Update: The deadline closed with Jamie Paterson also leaving the City Ground to join Huddersfield Town on loan for the season.