The 33 year old French has just been released by the Foxes as Craig Levein looks to re-shape his squad for next season.
Neil Warnock told sufc.co.uk "I am delighted to announce that after extensive talks Lilian has agreed to join us for next season.
"He is the type of midfielder I have been looking to sign since Stuart McCall stopped playing - the right age, the right temperament and I think he'll make us a better team."
"Leicester's financial situation means he is one of a number of players being released. Having spoken to Lilian at length he sees the challenge here as exciting and, being aware of a number of our players, he is looking forward to joining our squad in pre-season."
Nalis played in both fixtures against the Blades this season when the Foxes won 3-2 at the Walkers Stadium and when United won the home return 2-0 before news years day.
PLAYER PROFILE:
Name: Lilian Nalis
DoB: 29/09/1971
PoB: Nogent-sur-Marne, France
Position: Midfielder
Professional Debut: 07/08/1993 Caen 1-0 Auxerre
Career: Auxerre (1992, 0 + 0), Caen (1993-95, 21 + 0), Lavel (1995-97, 81 + 12), Guingamp (1997, 30 + 0), Le Harve (1998, 27 + 3), Bastia (1999-02, 81 + 3), Chievo Verona (2002, 6 + 0), Leicester (2002-04, 46 (20) + 6).