The 20-year-old forward has made only three appearances for Nigel Pearson's side since making a season-long switch to the King Power Stadium.
And United have opted to take Powell back to Old Trafford following a disappointing spell with bottom-of-the-table Leicester.
Leicester stated on the club's official website said: "Leicester City would like to thank Nick for his contribution during the last four months and wish him well in the future."
Powell joined United from Crewe Alexandra in June 2012 and was loaned out to Wigan Athletic last season.
The England Under-21 international has made only two Premier League appearances for United as a substitute in the 2012-13 campaign.
‘Sir Gary Lineker? I don’t know how you comment on that – I’ve never even considered it. I just try to stand up for the things I believe in’ England legend tells FFT why he won’t stop raising humanitarian issues, even if it affects potential honours
'I fell on the floor and shouted for a penalty. Someone pulled me up and said, "Don’t cheat to win penalties". It was Steve McManaman. I never did it again!' Ex-Liverpool forward reveals harsh lesson he learnt from his team-mate on Reds debut
