Rosario-born Banega had been linked with a move to the English Premier League during the January transfer window with Manchester United and Sunderland reportedly on his trail, but he has opted to join his hometown club Newell's.
Newell's revealed the move on their Twitter account, saying: "Happy to announce @Ever10Banega as a new player of Club Atletico Newell's Old Boys."
Valencia subsequently confirmed on their website that Banega would play for Newell's on loan until June 30.
The 25-year-old midfielder started his career with Boca Juniors in his homeland before moving to Valencia in 2008.
He made over 100 appearances for the Mestalla outfit, either side of a loan spell at Atletico Madrid in the 2008/09 season, and helped Los Che win the 2008 Spanish Copa del Rey.