Wolves have been assessing their options for weeks and have ruled out candidates including former West Ham manager David Moyes.
Pereira quickly rose to prominence and went on to win the Primeira Liga title with Porto in 2012 and 2013 and the Greek Super League with Olympiakos in 2015.
He has been in charge of Al-Shabaab since February and led them to sixth place in the Saudi Pro League.
Replacing the 56-year-old O’Neill, who was appointed to Molineux in August 2023Wolves have lost 11 of their 16 Premier League games this season.
They won just twice, against Southampton and Fulham, threatening their seven-year stay in the top flight.
Wolves chairman Jeff Shea said: “Vitor is a highly respected and experienced coach who has achieved success across a range of leagues and will bring a fresh approach to the Test going forward.
“This is a challenging moment for the club, and we would like to thank Vitor for taking on this responsibility.
“We have full confidence in his ability to get us back on track, alongside the players and staff, and the whole club will rally behind him to achieve success.”
