The 27-year-old, who began his career at Scunthorpe, is expected to go straight into Scunthorpe's squad for their home game against Torquay at the weekend.
Williams signed a permanent deal at Bramall Lane in January 2012 following an initial loan spell from Reading, but has not featured in the first team since the defeat at Brentford in August.
The left-back has made a total of 50 appearances for the Blades.
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