The 21-year-old joined the Reds in 2009 following an unsuccessful trial at Manchester United and has gone on to represent England Under-20s.
Ngoo has most recently enjoyed loan spells with Hearts and Yeovil.
Saddlers boss Dean Smith said: "Michael is a lad that I have been watching for a long time.
"He is the right calibre and profile to fit into what we are trying to do here.
"He's big, strong, athletic and can score goals. Technically he is very good and will improve what we have already got here.
"On top of all of that, he is also a good character and someone I am looking forward to working with."
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- Manchester United
- Dean Smith