Larsen, 25, has struggled for form at bottom placed Wolves this season, scoring just one Premier League goal in 22 games.
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Despite that, Palace have forked out a fee of £43 million plus £5 million in add-ons for the Norway international.
The striker has signed a four-and-a-half-year contract at Selhurst Park, with the option to extend the deal by a further 12 months.
He marks Palace’s third arrival of the January transfer window following the signings of Brennan Johnson and Evann Guessand.