Peter Taylor had transfer listed the Birkenhead-born striker earlier this summer after deciding he won't figure in his plans for the Championship. No fee is involved in the transfer.
21-year-old Walters had scored 5 goals in 11 games during loan spell in 2003, but found opportunities hard to come by after signing permanently in a £50,000 deal in February 2004. He scored just 3 goals since the move from Bolton.
This may now tempt Taylor to sign a striker. He has revealed his interest in Chris Moore of Dagenham & Redbridge, and Falkirk's Darryl Duffy, and now he has one less forward in his squad he may pursue one of those targets.
Elsewhere, ex-City midfielder Scott Kerr has moved from Scarborough to Lincoln. And at Tranmere, former Hull City manager Brian Little has signed goalkeeper Steve Wilson, while Jamaican duo Theodore Whitmore and Ian Goodison have agreed new contracts.