The 32-year-old, who spent last season on loan at Torino, has been linked with a move to Premiership side Blackburn.
Recoba will join the Greek side for free as his contract with Inter Milan expired this summer.
A statement on Panionios’s official website said: “Panionios confirms that it has come to an agreement, in principle only, with footballer Alvaro Recoba.
“We hope to finalise and announce the player’s signing with our club in the coming days.”
Recoba will earn £800,000 per year at his new club.
